Type C hepatic encephalopathy (Type C HE) is a major and complex neurological condition that occurs following chronic liver failure. The molecular basis of Type C HE remains elusive. Type C HE is characterized by mental confusion, cognitive and motor disturbances. The presence of Alzheimer type II astrocytes (AT2A) is the key histopathological finding observed in Type C HE. However, nothing is currently known regarding AT2A development and its involvement in cognitive, and motor deficits in Type C HE. We, therefore, examined in rats the mechanisms by which liver failure contributes to the progression of AT2A, and its role in the development of cognitive and motor deficits in thioacetamide (TAA) model of Type C HE. We and others earlier reported increased oxidative/nitrosative stress (ONS), JNK1/2, and cMyc activation in ammonia-treated astrocyte cultures, as well as in brains from chronic liver failure. We now found increased levels of astrocytic glia maturation factor (GMF, a factor strongly implicated in neuroinflammation), as well as various inflammatory factors (IL-1β, TNF-α, IL-6, MMP-3, COX2, CXCL1, and PGE2), and reduced levels of GFAP and increased levels of aggregated nuclear protein Lamin A/C in rat brain cortex post-chronic liver failure. We also found increased levels of GMF and inflammatory factors (MMP-3, COX2, CXCL1, and PGE2) in astrocytes post-ammonia treatment in vitro. Additionally, pharmacological inhibition of upstream signaling of GMF (ONS, JNK1/2, and cMyc) or GMF inhibitors W-7 and trifluoperazine significantly reduced the levels of inflammatory factors, the number of AT2A cells, as well as the cognitive and motor deficits in TAA-treated rats. Increased levels of GMF were also identified in human post-mortem brain sections. These findings strongly suggest that increased levels of astrocytic GMF due to elevated levels of ONS, JNK1/2, and cMyc and the subsequent inflammation contribute to the development of AT2A and the consequent cognitive, and motor deficits in chronic liver failure.