The Ministry of Information Technology and Telecom said, in a statement to Reuters, that under the new version of YouTube the Pakistan Telecommunication Authority will be able to ask for offending material to be blocked.
The Pakistan government first implemented a ban on the site in 2012 after the anti-Islam film "Innocence of Muslims" was uploaded, triggering demonstrations and outcry
across the Muslim world.
More than a dozen people died in protests in Pakistan
The news has been received with cautious optimism by free speech activists, who feel that the details of the agreement should be made public.
"We want to know what arrangements YouTube has made to protect our right to freedom of expression while launching their localized services," Bytes for All
, a group that fights for digital rights in Pakistan, told CNN.
"Both parties have been very secretive."
According to YouTube, the changes don't necessarily mean all government requests for takedowns will automatically be met.
"We have clear community guidelines, and when videos violate those rules, we remove them," said a YouTube spokeswoman.
"Where we have launched YouTube locally and we are notified that a video is illegal in that country, we may restrict access to it after a thorough review," she said.
"And we will continue to track all and any government takedown requests in our Transparency Report, as we have done globally."
The Google-owned video streaming site has also launched localized services in Sri Lanka and Nepal.