Lieutenant general Faiz Hameed, who stepped down in December 2022, was accused of abusing his power and raiding the businesses of a private housing developer, according to Supreme Court papers published last year.
The court at the time ordered the developer to take his complaints to the ministry of defence.
"Complying with the orders of Supreme Court of Pakistan, a detailed court of inquiry was undertaken by Pakistan Army. Consequently, appropriate disciplinary action has been initiated against Lt Gen Faiz Hameed (Retd)," the military's media wing said in a statement.
The process of court martial "has been initiated" and Hameed "has been taken into military custody", the statement said.
It added that "multiple instances of violation" of the Pakistan Army Act since his retirement had also been "established".
The military is the most powerful institution in Pakistan and is behind the rise and fall of every civilian government, according to analysts.
Analysts say Hameed was a keen supporter of Khan, who was booted from power in a no-confidence vote after losing favour with some of the top brass.
Once tipped as a contender for the top role of Chief of Army Staff, Hameed took early retirement months after Khan lost power.
Khan went on to wage a campaign of defiance against the military and his arrest in May 2023 for graft sparked nationwide protests which turned violent and saw unprecedented anger directed at army installations.
It was met with a sweeping crackdown against his Pakistan Tehreek-e-Insaf party, which went on to win the most seats in February's national election despite being forced to run as independent candidates.
However, the party was kept from power by an alliance of parties that analysts say are backed by the military.
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