First, are you sure your new 200-amp has a busbar rated for a 125-amp breaker? Not all panels are! Most GE panel are limited to 90-amps max and Square D QO I believe is rated but double check this, Siemens panels with copper bus may be rated too, but not the standard aluminum alloy bus version. My point is check first before you buy. Just because you can physically fit the breaker in the space doesn't mean it is rated for it or that it's acceptable!
For copper #2 wire will suffice but nothing wrong with using 1/0 or 2/0 if you prefer. However you might have a hard time getting the bigger wire in the breakers lugs.
For copper #2 wire will suffice but nothing wrong with using 1/0 or 2/0 if you prefer. However you might have a hard time getting the bigger wire in the breakers lugs.