The ban on the Houbara bustard, about the size of a chicken, was imposed by former chief justice Jawwad S Khawaja on August 20 last year, who also ordered the cancellation of all existing permits issued by government to Arab rulers.
The federal and provincial governments in October had challenged the ban, pleading that sustainable hunting should be allowed.
A five-member larger bench headed by Chief Justice Anwar Zaheer Jamali lifted the ban in a verdict on the review petitions.
The petitioners had pleaded that issuing hunting permits to Arabs dignitaries was part of foreign policy.
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The Attorney General Salman Butt asked the Supreme Court to allow "sustainable hunting" of the bird.
Pakistan enjoys good ties with Arab rulers who love hunting Houbara. The bird's meat is considered having aphrodisiac value.
Elite from the Gulf travel to Balochistan province every winter to kill the houbara bustard using hunting falcons.
The issue of hunting came into limelight after a report in 2014 showed Saudi prince Fahd bin Sultan bin Abdul Aziz Al Saud killed over 2,100 houbara bustards in a cruel 21-day campaign in clear violation of his permit to hunt only 100 birds.
The IUCN estimates the global population of Houbara bustards at between 50,000 and 100,000 and includes it on its red list of threatened species.
Each year, several thousand Houbara bustards traverse a 2,000 km migratory route from Central Asia to the southern deserts of Pakistan and Iran, and return with the onset of summer.