The ban was imposed by former chief justice Jawwad S Khawaja on August 20, 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.
Though the decision was not unanimous and there was one dissenting note by Justice Qazi Faez Isa who opposed the bench's order.
The petitioners had pleaded that issuing hunting permits to Arabs dignitaries was part of foreign policy. The attorney general (AG) Salman Butt asked the Supreme Court to allow "sustainable hunting" of the bird.
Pakistan enjoys good ties with Arab rulers who love hunting houbara. Its meat is considered having aphrodisiac value. People 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 bustard in a cruel 21-day campaign in clear violation of his permit to hunt only 100 birds.
Houbara bustard is listed in the Convention on Migratory Species of Wild Animals, also known as the Bonn Convention, and is declared as an endangered species by the International Union for Conservation of Nature. The meat of houbara bustard is considered as having aphrodisiac qualities by the Arabs.