The history of the city of Loikaw is inextricably linked to the heritage of the Karenni people and the development of Kayah State. Initially, the settlement formed as the centre of the Kantarawaddy Principality, one of the historical state formations in this region. The city acquired special significance in the 19th century when it became a key administrative hub. It was here that the residence of the local rulers (Saopha) was located, and later, the administration managing the affairs of the Karenni States, which secured Loikaw's status as the regional capital.
Several important circumstances influenced the establishment and growth of the city:
- Geographical Location: The city was founded in a strategically important location on the banks of the Pilu River (Belu Chaung). The river provided residents with water and served as the main transport artery connecting the valley with Inle Lake.
- Trade and Resources: Its location at the junction of mountainous areas and fertile plains made Loikaw a natural centre for trade. Routes for the exchange of goods between various hill tribes and merchants from the central part of the country intersected here.
- Terrain: The unique landscape with limestone outcrops provided natural landmarks and convenient sites for erecting religious structures.
The economy of early Loikaw was based on agriculture and the extraction of natural resources. The region was famous for harvesting teak wood, which was highly valued and exported, while local residents were actively engaged in growing rice on irrigated lands along the river. Culturally, the city has been a "melting pot" for many ethnic groups since its founding, including the Kayah and Padaung peoples. The spiritual heart of the settlement became the famous Taung Kwe Pagoda (Thiri-Mingalar), erected on the peaks of the cliffs. It symbolised the union of Buddhist traditions with the local veneration of nature spirits and served as the main place of pilgrimage.