In February 1921 he expelled Chinese troops from Mongolia and restored the monarchic power of the Bogd Khaan. There, Ungern's eccentric, often violent treatment of enemies and his own men, earned him the sobriquet 'the Mad Baron'. On October 1920, The White Russian General Baron Roman von Ungern-Sternberg led his troops into Mongolia, defeating the Chinese forces in the capital city of Ulaanbaatar.

In 1919, after the October Revolution in Russia, Chinese troops re-occupied the country due to fears of communism spreading to mainland China. After the 1915 tripartite Kyakhta Agreement, Russia, RoC and Mongolia agreed that Mongolia was autonomous under Chinese Control. But, the newly established Republic of China considered Mongolia to be part of its own territory. With the fall of the Qing dynasty in 1911, Mongolia under the Bogd Khaan, (Mongolia's civil and religious ruler) declared independence.