As stated in History of the Punjab Hill States by J.Hutchinson and J.P. Vogel: "Kotli was founded about the fifteenth century by a branch of the royal family of Kashmir. Kotli and Poonch remained independent until subdued by Ranjit Singh in 1815 and 1819 respectively."
The royal family of Kashmir Hutchinson and Vogel are referring to is the family of Raja Mangar Pal. Before its name was Kohtali mean (under mountain) after that people changed its name to Kotli. Kotli was historically known as Kotli.
There is a famous saying in Azad Kashmir: "Kotli Mangrallan da, Rajouri Jarrallan da, Bhimber Chiban da, Mirpur Gakharan da"
Translation:
• Kotli is ruled by the Mangral Rajputs, Rajouri is ruled by the Jarral Rajputs, Bhimber is ruled by the Chib Rajputs and Mirpur is ruled by the Gakhar Rajputs