Yes, resetting the device and using Autopilot is the preferred path here from a Microsoft perspective. Keep in mind that this assumes a lot of things as this won't preserve user, data, applications, or configuration so you need to be prepared to deploy these from whatever management tool you are using (Intune and/or ConfigMgr in the Microsoft ecosystem).
Unregistering from AAD isn't necessary.
Technically, you could certainly unjoin the on-prem domain and then join AAD but as Nick noted, this will orphan the user's profile and there are no supported Microsoft tools to migrate user profiles for this scenario.