They lived in their estate located in Arasbar (Arasbaran) but also owned land in Tartar and the northern shores of the Aras River.

When this news reached Nader Shah, he ordered all Muslim landowners of the region and their families deported to Khorasan (northeastern Iran) as punishment.

[3][b] He is said to have found refuge in the mountains of Karabakh and with the sultan (district governor) of Qabala or, according to another source, with the "Lezgins" of Jar-Balakan, from where he carried out raids and became a popular leader.

[12] An Armenian tradition claims that Melik Allahghuli of Jraberd hired Panah Ali as his tax collector (darugha) and protected him from Nader Shah.

[9] According to Mirza Adigozal Bey, Nader Shah sent letters to the local khans ordering them to apprehend Panah Ali, but no one was able to do this.

Many of the tribes that had previously been deported from Karabakh returned and joined Panah Ali,[14] as did his son Ibrahim Khalil.

[16] In 1748, the new ruler of Persia, Adil Shah, issued a firman (decree) recognizing Panah Ali as the Khan of Karabakh.

In a short period, external walls were constructed, ditches were dug out, and a bazaar, bath and mosque were built.

He moved on Nazarali Khan Shahsevan of Ardabil in 1749 and forced him to marry his sister Shahnisa to his own son Ibrahim Khalil and accept vassalage.

On the advice of Melik Shahnazar II, he built Shusha Castle in 1750-1751 and relocated his capital, thus settling a semi-nomadic populace in the quarters of the new city.

Next year, in 1752, Teymuraz II of Kakheti attacked Ganja and forced Panah Ali to retreat from area.

Haji Chalabi later invaded the Georgian possessions, where he captured the Kazakh and Borchali regions, leaving his son Agakishi bey as viceroy.

He allied with the tanuter (headman) of Khndzristan village Mirzakhan and promised him the Principality of Khachen if he would kill Melik Allahverdi I Hasan-Jalalyan.

He left his son Mehrali Bey Javanshir in charge of the khanate while he left for battle against Fath-Ali.According to Mirza Adigozal Bey, when Karim Khan Zand took control of much of Iran, he forced Panah Khan to come to his capital, Shiraz, where he died as a hostage in 1763[24] (although, according to his gravestone in Aghdam, he died in July–August 1759).

Panah Ali was married to a sister of Hajji Sahliyali Bey of the Kebirlu clan, among other wives, and had several sons:[25]