The revamp and new investment in the carrier will cost about 6 billion Malaysian ringgit ($1.9 billion).
The twin disasters and ongoing financial woes "created a perfect storm for the restructuring to take place," said Khazanah Managing Director Azman Mokhtar. "We need to have a fresh start."
The plan aims to "strike a balance between Malaysia's desire to revive a national carrier against the prudent use of public funds," he said.
The airline will be removed from the Malaysian stock exchange and taken completely under the wing of the government. Khazanah, which previously announced that it plans to take 100 percent ownership, aims to restore Malaysia Airlines to profitability by the end of 2017 and then relist its shares on the stock exchange by the end of 2019.
A substantial revamp has long been on the cards for Malaysia Airlines, which was struggling with chronic financial problems even before it was hit by the double disasters this year.
Investigators continue to scour the southern Indian Ocean for Malaysia Airlines Flight 370 which veered far of course while en route from Kuala Lumpur to Beijing on March 8 with 239 people on board. In July, 298 people were killed when Flight 17 was blasted out of the sky as it flew over an area of eastern Ukraine controlled by pro-Russian separatists.
The tragedies have scarred the airline's brand, once associated with high-quality service. Travelers on recent long-haul flights have posted photos on social media of nearly empty cabins and departure lounges. The airline says passengers fell 11 percent in July from the year before.
Azman said Khazanah's 6 billion ringgit investment "will not be a bailout" and that the investment company will get its money back if the airline follows strict conditions laid out under the 12-point plan restructuring plan.
Khazanah, which has previously pumped 7 billion ringgit into the airline, said it plans to sell all or some of its stake to "strategic buyers from the private sector" once the carrier returns to the stock market.
Azman said Khazanah has recommended to the government that the Malaysia Airlines name remain unchanged. He also said there are no plans to sell its maintenance and engineering arms.
In releasing its latest quarterly financial result, a loss, on Thursday, Malaysia Airlines said the worst financial impact from the disasters will come in the second half of this year.
Khazanah said it has begun a search for a new chief executive for the airline, which is likely to be completed by the end of this year.
Current CEO Ahmad Jauhari Yahya will continue to head Malaysia Airlines until its new incarnation is established in July next year.