Kaavan was kept in chains at Islamabad Zoo and exhibited symptoms of mental illness, prompting global outrage over his treatment and a petition demanding his release that garnered over 400,000 signatures.
The capital's High Court ordered Kaavan's freedom in May and instructed wildlife officials to find him a "suitable sanctuary".
Adviser to Prime Minister Imran Khan on Climate Change Malik Amin Aslam said authorities would "ensure that he lives a happy life".
"We are bidding Kaavan farewell with a heavy heart. It is a sad decision," he added.
Aslam said that a team from Cambodia is coming over to take the 36-year-old elephant with them.
He said that he had discussed Kaavan's plight with the prime minister and it had been decided that a safari zoo will be built in Islamabad.
Authorities told the hearing that an expert committee had recommended he be moved to a 25,000-acre wildlife sanctuary in Cambodia for retirement.
"The court has agreed with the proposal," Anis-ur-Rehman, the chairman of Islamabad Wildlife management board, told AFP on Saturday.
Zoo officials have in the past denied that the Kaavan was chained up, instead claiming he was pining for a new mate after his partner died in 2012.
But his behaviour — including signs of distress such as bobbing his head repeatedly — demonstrated "a kind of mental illness", Safwan Shahab Ahmad of the Pakistan Wildlife Foundation told AFP in 2016.
Activists also said Kaavan was not properly sheltered from Islamabad's searing summer temperatures, which can rise above 40 degrees Celsius (100 Fahrenheit).
Kaavan's plight drew the attention of Cher, who spent years calling for his freedom.
She tweeted in May that the court's decision to order his release was "one of the greatest moments of my life".
Arriving in Pakistan as a one-year-old in 1985 from Sri Lanka, Kaavan was temporarily held in chains in 2002 because zookeepers were concerned about increasingly violent tendencies.
He was freed later that year after an outcry but it emerged in 2015 that he was once more being regularly chained for several hours each day.
The court's May ruling also ordered dozens of other animals — including brown bears, lions and birds — to be relocated temporarily while the zoo improves its standards.
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