Martinelli, 66, was arrested by U.S. officials in June 2017 on an extradition request from Panama. He faces charges of corruption and political espionage in his home country.
The State Department, which must give its approval as a final step in any extradition, signed off on the move.
"It is for Panamanian courts to determine Mr. Martinelli’s guilt or innocence on the charges for which he was extradited," spokeswoman Heather Nauert said in a statement.
Martinelli had been living in Miami, Florida, where he was arrested.
He has been indicted in Panama on charges of embezzling more than $10 million in government funds and illegally spying on over 150 people whom Martinelli thought of as "rivals" from 2012 to 2014, including his political opponents and allies, journalists and judges, according to the Justice Department.
"Our Office is committed to upholding the rule of law and ensuring that justice is appropriately carried out for all parties. Because of Panama’s partnership with the United States, Martinelli has been returned to Panama," U.S. Attorney Benjamin G. Greenberg of the Southern District of Florida said in a statement.
The U.S. signed its extradition treaty with Panama in 1904.
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