Milan and Lazio agree exchange deal
Albertini, who spent last season on loan at Atletico Madrid, knew he was surplus to requirements at Giuseppe Meazza after being left out of their squad for pre-season training.
Milan have now confirmed that Lazio have sealed Albertini on a two-year contract, worth an estimated é¼2.5 million.
Albertini's agent Carlo Palavicinio revealed to planetfootball.com earlier this month that Lazio were an option for him and now he has taken that up.
Pancaro, meanwhile, has joined the European champions on a season-long loan with a view to permanent deal next summer.
Milan confirmed no money would be passing between the clubs, saying: "Both players have been transfered on free terms."