Originally, there were two monasteries at Sakya: the imposing, Mongol-style structure of the Southern Monastery that visitors come to see today, and a Northern Monastery across the river, which was a more typical complex containing 108 chapels. The Northern Monastery was founded in 1073 by Kong Chogyal Pho, a member of the Khon family, whose son, Kunga Nyingpo, did much to establish Sakya as an important religious centre. He married and had four sons; three became monks, but the fourth remained a layman and continued the family line. The Sakya order has remained something of a family affair, and, while the monks take vows of celibacy, their lay brothers ensure the leadership remains with their kin. One of the early leaders was a grandson of Kunga Nyingpo, known as Sakya Pandita. He began the most illustrious era of the order in the thirteenth century when he journeyed to the court of the Mongol emperor, Godan Khan, and established the Sakya lamas as religious advisers to subsequent emperors and effective rulers of Tibet. This state of affairs lasted until the overthrow of the Mongols in 1354.

The Northern Monastery was completely destroyed during the Cultural Revolution and has been largely replaced by housing. Prior to the Chinese occupation, there were around five hundred monks in the two monasteries; there are now about a hundred.

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