Ousted monarch Gyanendra officially lost his crown last week, when a Maoist-dominated constitutional assembly made Nepal a republic after an overwhelming vote in favour of ending the 240-year-old monarchy.
The assembly also issued a 15-day deadline for Gyanendra to vacate the sprawling Narayanhiti palace, which is now slated to be turned into a national museum.
"The cabinet meeting on Wednesday decided to provide Nagarjun palace to the ex-king Gyanendra for accommodation for the time being," peace minister Ram Chandra Poudel told AFP.
Nagarjun palace is one of seven royal properties that were nationalised last year. It is situated in an army-protected forest reserve around eight kilometres (five miles) north of the centre of Kathmandu.
Committees are currently auditing property inside the king's main palace, which contains national treasures including a crown ringed with massive emeralds and studded with diamonds.
The ex-king told the government earlier this week that he respected the decision to end his reign, and local media reported he was consulting astrologers to determine the most auspicious day to move before the June 12 deadline.
Gyanendra ascended to the throne in June 2001 after a palace massacre which saw his nephew, Crown Prince Dipendra, gun down most of the royal family after being prevented from marrying the woman he loved.