The former CEO of auto giant Hyundai has received strong public support for his economic plans, despite a criminal probe into alleged stock manipulation.
An exit poll by TV channel SBS gave the right-wing politician 51.3% of the vote, while channels KBS and MBC gave him 50.3%. The presidential election was the fifth since military rule ended in South Korea 20 years ago.
Seoul's Yonhap news agency said voters had put the economy first, amid sky-high real estate prices, growing inequality, and rising unemployment.
South Korea, dubbed one of the four "Asian Tigers" for its powerful growth up to the 1990s, now faces strong competition from China and Japan and has been hard-hit by the economic slowdown in the U.S., its main export market.
The former executive, nicknamed "The Bulldozer" for his direct, ruthless management approach, has made a "747" pledge of producing 7% annual GDP growth, bringing per capita income up to $40,000, and making the country the world's seventh largest economy.
He is also expected to take a tougher line on North Korea than outgoing leader Roh Moo-hyun, who was forbidden by the Constitution from seeking a second consecutive term. Lee has said he will seek stronger guarantees that the North is fully scrapping its nuclear program, and may be less generous in providing subsidies to Pyongyang.
Parliament voted on Monday to appoint an investigator to look into charges that Lee swindled investors out of millions of dollars, after a video was released showing him admitting he had founded a company implicated in fraud.
If Lee, who turned 66 today, is not charged by the inauguration date of February 25, 2008, he will enjoy immunity from prosecution as president.
Lee's closest rival in the election was Chung Dong-young, who served in the outgoing leader's government. According to exit polls, he garnered around 26% of votes.
Turnout at the election, at which 37 million people were eligible to vote out of the country's 49-million population, was around 7% lower than in the 2002 presidential vote.