Background Few data are available on the genetic variants of SARS-CoV-2 which circulated in Nepal and the effectiveness of various COVID-19 vaccines used in the country. In this study, we estimated the effectiveness of different COVID-19 vaccines against laboratory-confirmed COVID-19 during the third wave of the COVID-19 pandemic and also identified circulating SARS-CoV-2 variants. Methods We conducted a hospital-based, prospective test-negative case–control study at Patan Hospital, Kathmandu. All patients >18 years of age presenting to Patan Hospital with COVID-19-like symptoms who received a COVID-19 antigen/PCR test were enrolled. Positive SARS-CoV-2 samples were sequenced to identify circulating variants, and vaccine effectiveness against laboratory-confirmed COVID-19 disease was calculated using logistic regression. Results A total of 285 participants were enrolled between November 2021 and July 2023, with 157 testing SARS-CoV-2 positive. All the positive samples were of the omicron sublineages. Six were excluded due to conflicting PCR and antigen test results. Partial or full immunisation with COVID-19 vaccines did not show any protective effect against mild symptomatic infection. Vaccine effectiveness(VE) (95% CI) was 62%(−303,96) against severe hospitalised cases ( p = 0.42), whereas VE (95% CI) was 86%(42,97) in non-severe hospitalised cases ( p = 0.007). Participants who were hospitalised were less likely to have been vaccinated than non-hospitalised cases (odds ratio 0.07). Conclusion As expected, we found that Covid-19 vaccines did not protect against mild symptomatic infections in the Omicron era but were associated with reduced odds of hospitalisation.