Al Fayed commissioned the bronze statue, which shows his son and Diana holding hands and releasing a bird, after they were killed in a Paris car crash in 1997.
It remained there after he sold Harrods to the investment arm of Qatar's sovereign wealth fund in 2010.
But the store's managing director, Michael Ward, said it was now time to return it, noting that Diana's sons Princes William and Harry were commissioning their own statue to their mother at Kensington Palace.
"With the announcement of the new official memorial statue to Diana, Princess of Wales at Kensington Palace, we feel that the time is right to return this memorial to Mr Al Fayed and for the public to be invited to pay their respects at the palace."
Al Fayed has accused the royals of masterminding the death of Diana and his son, and as a result Harrods lost its royal warrant in 2000.
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