Internal fighting broke out within the Yarlung Tribe when Songtsan Gambo was 13 years old. His father was poisoned to death, and the regime was about to fall. Songtsan Gambo succeeded as the king, and fought and annihilated the rebels. He also conquered the Dagbo, Gongbo, Nangbo and Supi tribes, thus unifying the Tibetan plateau and founding the Tubo Kingdom, with the capital set up in Gyiqoiwotang (present-day Lhasa). It was at that time he was donned "Songtsan Gambo,'' meaning "strongly minded king''.

Legend has it that, when Songtsan Gambo reached Gyixoiwotang during his expedition, it was summer. He took off his military uniform and took a dip in the rippling Gyiqoi River. He was delighted to see the crystal clear water and emerald mountains, including the Red and Tieshan Hills surrounding the area, and came to the conclusion that this was the best place from which to press ahead with his strategy of controlling all of Tibet. Indeed, this was a strategically advantageous area, with Qinghai in the north, Shannan in the south, Zhangzhung in the west, and Dorkang in the east. It was richly endowed with natural resources and was much, much better than Yarlung. Thus the decision of moving the capital to Gyiqoiwotang was made.

In 633, Songtsan Gambo led his men from Maizhokunggar westward to Gyiqoiwotang. Songtsan Gambo examined the desolate plain and decided to intercept the northern section of the Gyiqoi River and divert the water in the direction of Shannan. The area around the Red Hill became lush, and Songtsan Gambo built palaces, monasteries, military barracks, and civilian housing there. A spectacular stone palace stood at the top the Red Hill. This was the predecessor of the Potala Palace. Guests of the Feast of Scholars described the palace in this way: "Three walls were built around the Red Hill. Inside the walls were pillboxes, totalling 999 in number. At the summit of Red Hill was built a palace, thus bringing the total number of palaces up to 1,000. These palaces were adorned with gold, silver, pearls and tassels as majestic as the Heavenly Palace itself.''