The Olympic body's executive board voted unanimously to place the Italian Football Federation (FIGC) under extraordinary administration and propose Malago to oversee daily operations, subject to final ratification by its National Council.
The move offers a political exit route following weeks of administrative friction after Malago won the federation presidency in June with over 68% of the vote.
Legal inquiries commissioned by the Olympic authorities had questioned the validity of the ballot over technical non-compliance because Malago was not a member of the FIGC at the time of his election.
Under the arrangement, Malago will step down from the presidency to allow the implementation of a special administration.
He will then assume a role to navigate the federation towards new presidential elections within three months, during which time his formal administrative standing can be regularised.
Malago will be eligible to stand as a candidate in the election that is to be held no later than January 31st next year.
The leadership dispute comes at a critical moment for Italian football, which faces pressing structural challenges, including venue upgrades required to co-host EURO 2032 and the sporting fallout from missing three consecutive World Cups.