Indians general manager Mark Shapiro said the trade was necessary to evaluate talent and develop starters for next season.
"We are quickly approaching the point where we had six guys for five spots that we wanted to give an opportunity to and look at," Shapiro said. "With the regular off-days that we have in September, it would have been a real challenge to keep six guys starting."
Pavano was scheduled to start Saturday's game against the White Sox. Instead, Justin Masterson will take Pavano's spot in the rotation. Masterson was acquired from the Red Sox before the non-waiver Trade Deadline expired on July 31.
Shapiro said there was only slight hesitation on the organization's part to trade Pavano to the Twins, an American League Central rival.
"I think there was hesitation just about trading him in general because the competitive side in you recognizes that he's been one of our most consistent starters and one of our best starters," Shapiro said. "I hate to take that guy off the club, but within the division at this point, no not really."
Pavano, 33, joined the Indians after four tumultuous and injury-filled years with the Yankees. He went 9-8 with a 5.37 ERA with the Indians, matching his victory total from his time with the Yankees. The nine wins were the most on the Indians' staff this season.
Perez, 27, will begin his third stint with the Indians this season. At Columbus, he was 1-0 with three saves and a 0.83 ERA in 16 appearances. With Cleveland, however, his numbers have been significantly worse. In 31 appearances with the Indians, Perez is 1-2 with an 8.88 ERA.
Perez will provide the Indians with a second left-hander in the team's bullpen to go with Tony Sipp.
Bench coach Jeff Datz, serving as acting manager on Friday while Eric Wedge attended his mother-in-law's funeral, said Perez had struggled with both his slider and fastball throughout the 2009 campaign.
"It's been a rough one for him," Datz said. "But he's here now and he has two months to get it going, and I think he'll do that."