Mind you, I have never done this; however, I have sewn for years and think it could be done without too much trouble. I would indeed cut the lining pieces larger, say 5/8, as indicated in most U.S. sewing patterns, on all seam edges, side, shoulder, neckline, hem and armhole and the front. You would need to line the jacket/cardigan to the edge, of course. Oh, first of all, I would assemble the knitted pieces before lining so it is finished on the inside after lined. Prior to cutting out (and being certain the lining is sufficiently large enough) possibly trying it out first in a piece of muslin or similar weight fabric of the lining you wish to use. Assemble the lining, shoulder, side seams. You could either sew in the sleeves at this point (if your knitted garment also has sewn-in sleeves. Or, what I do when sewing, I blind-stitch my sleeves in after the shell lining is attached to the garment. If you sew in the sleeve lining to the shell (body part) be certain to add ease and trim the seams so they don't bind. I also re-inforce the lining of the sleeve underneath, approximately an inch or so with machine sewing and trim this to about 1/4".
After that I would blind stitch the hem, neckline, fronts and sleeve hems to your garment with matching thread, only catching a wee bit of the knitted garment. Edgestitch, approximately 1/2" (if using a 5/8" seam allowance) to the neckline edge, cliping with scissors so it will have room to spread out almost to the stitching line, trimming a little off the neckline edge and blindstitch to the neckline of the knitted garment.
With regular fabric it is usually advisable to add ease (meaning that 'pleat' in the center back) but I would not think this necessary if the garment (knitted is loose-fitting). This is to allow the lining not to pull
I don't know IF this makes any sense to you but I can see it in my mind as I've lined many a jacket in my life with no trouble.