Delhi government had earlier issued a notice to Mr Kejriwal asking him to pay a monthly rent of Rs. 85,000 for the flat at C-II/23, Tilak Lane, in Central Delhi.
However, Mr Kejriwal had sought an extension of stay in the house until his daughter's Class XII examinations got over.
Now that his daughter has finished with her higher secondary and Indian Institute of Technology or IIT entrance exams, the Kejriwals have decided to move out, an AAP source said, adding that although they are yet to zero in on any house, the family may decide to settle down in east Delhi.
"We are looking for a new house and, as soon as we finalise on it, we will vacate this house and transfer possession to the government," said the AAP source.
After coming to power in Delhi in December, 2013, Mr Kejriwal had stepped down from office in Februray, 2014, following a brief 49-day stint as Delhi Chief Minister.
The source, meanwhile, added that Mr Kejriwal was looking to have the house allotted in the name of his wife, who is a senior Indian Revenue Service or IRS officer.
The source said that Mr Kejriwal's wife, Sunita, is due for a promotion in her job which would entitle her to an accommodation of a type similar to the one on Tilak Road, but noted that it could take a couple of months due to the change of guard at the Centre.
Mr Kejriwal had moved into the house in January of this year from Kaushmabi in Ghaziabad after he became Delhi Chief Minister.
Mr Kejriwal's daughter Harshita scored 96 per cent in her Class XII exams.
"My parents are my role models. I would like to pursue a course in one of the IITs. Now my aim is to get admission in an IIT," Harshita said after passing the 12th exams.