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Azhar has been shifted to his residence, which has been converted to a "sub-jail", from Mianwali jail.
The government would also pay Rs 10,000 to his family as sustenance allowance, a Pakistan daily, The Dawn, said.
The Jaish chief was shifted on the orders of the Lahore High Court Review Board, it said.
Azhar was detained ahead of the ban clamped by President Pervez Musharraf on the Jaish, Lashkar-e-Tayiba and three other militant outfits on January 12.
He was reportedly arrested under the Maintenance of Public Order, which empowered the police to detain him for 90 days without trial.
Technically, Azhar's detention under MPO came to an end on March 25, as he had completed the mandatory 90 days' detention.
Detained Lashkar chief Hafiz Mohammed Saeed has also been reportedly permitted to stay at home at the end of the detention period. However, there was no official confirmation on this.
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