The palace was built in 1112 by Mas'ūd III (reg. 1099-1114/5), son of Ibrahim, on a site to the southeast of the walled Ghaznavid capital. It was probably burnt down during the Ghurid conquest of Ghazna in 1151; the city and the palace were demolished in 1221 by the Mongolian army of Genghis Khan. The palace ruins were excavated by Italian archaeologists from IsMEO (Istituto Italiano per il Medio ed Estremo Oriente), only to suffer further damage and looting during the Soviet invasion and the Afghan civil war. A 2005 survey report by SPACH (Society for the Preservation of Afghanistan's Cultural Heritage) listed the site as completely destroyed. 

The excavated foundations show a palace with a roughly rectangular outline, its corners placed roughly on the cardinal axes. Fortified walls of 120 to 150 meters in length enclose the palace and a bazaar street located to the its northwest. The bazaar, which spans the entire length of the palace, is entered from gates located at either end (northeast and southwest), and contains the palace portal.

The portal opens into the northwest iwan of the palace courtyard. Thirty-two meters wide by fifty meters long, the courtyard is enveloped by four central iwans and thirty-two arched niches. The grand iwan to the southeast leads into the throne room, which has an oblique rear wall abutting the exterior wall of the palace. An inner courtyard, entered via a passageway from south corner of the courtyard, adjoins the throne room to the southwest. The hypostyle palace mosque was excavated at the western corner of the main courtyard. It is three bays wide and five bays deep and is entered from four niches along the southwest courtyard wall. Its interior walls were built at a slight angle with the rest of the palace in order to align with qibla.

The walls of the palace courtyard were adorned with an exceptional marble dado, consisting of an estimated number of 510 panels around the courtyard, each about 70cm high. The panels formed three distinct bands. The wide central band contains carved arabesques on a floral entrelac and sits above a narrow band of intervowen scrolls. A narrow band of floriated Kufic script tops the dado. About a tenth of the panels were found in situ during the excavations, allowing a reading of the Persian inscription. Composed in the mutaqarib meter, the verses offer praise to Mas'ud III's predecessors and in particular, to Mahmud of Ghazna. The letters were originally painted in lapis lazuli blue, with a red or gilt background. A marble footpath, about five meters wide, encircles the courtyard below the dado. 

After the abandonment of the palace as a courtly residence, the area became used as a cemetery. During this time, a ziyara (shrine) with a beehive dome was erected behind the iwan on the west side of the courtyard. It stands today and is known as the Ziyara-i Ibrahim.

Several items excavated at the palace, including a door-frame, a screen bearing the name of Mas'ud III, and segments of the marble courtyard dado, were moved to the nearby Museum of Islamic Art, established in 1966 at the Mausoleum of Ulugh Beg and 'Abd al-Razzaq. Kabul Museum, which protected the museum's collections during the Afghan civil war, was attacked and looted between 1992 and 1996. The provenance forty-four panels that were left in situ is unknown.