Gustavsson, who founded Farfar alongside Matias Palm-Jensen, Per Nasholm and Nicke Bergstrom in 2000, will focus specifically on Agency Republic's O2 business, as well as working across the agency's Diageo accounts.
Gustavsson is expected to work alongside the agency's two other creative directors, Gemma Butler and Alistair Campbell. All three will report to Agency Republic's executive creative director, Gavin Gordon-Rogers.
Gordon-Rogers said: "Gustavsson has been involved in driving forward some of the most cutting-edge work in digital over the past five years. We're very lucky to have found him."
Farfar recently topped The Gunn Report as the most- awarded digital agency globally in 2007. Gustavsson's departure from the agency follows shortly after Nokia called a review of its global digital arrangements. Gustavsson had worked closely on the account at Farfar.