Lee Myung-bak is perceived as being a good economic manager

The National Election Commission said Mr Lee had 48.6% of the vote after 98% were counted. Chung Dong-young, of the ruling liberals, was second with 26.2%.

Mr Lee's victory hands back power to his Grand National Party (GNP) for the first time in a decade.

But he still faces allegations over an alleged fraud in 2001, which he denies.

Although prosecutors had decided there was not enough evidence to charge him, MPs voted to reopen the case earlier this week.

Mr Lee, who had been widely expected to triumph in the ballot, will replace incumbent Roh Moo-hyun in February.

Voter turn-out was estimated to be about 60% - one of the lowest ever for a South Korean election.

'Negative campaigns'

Mr Lee, a former Hyundai executive, claimed victory in a televised news conference, saying the Korean people had given him "absolute support".

"I'm well aware of the people's wishes," he said.

The election in pictures

"I will serve the people in a very humble way. According to the people's wishes, I will save the nation's economy that faces a crisis."

Mr Chung, of the governing liberal United New Democratic Party (UNDP), had earlier conceded the election, saying: "I accept what the people decided today."

"I hope president-elect Lee Myung-bak will lead the country well," he told Reuters news agency.

Mr Lee, who celebrated his 66th birthday on polling day, sought to persuade voters that he could attract foreign investment and boost the job market.

But the claims of stock market fraud overshadowed much of his campaign.

Fights broke out in parliament when MPs discussed a bill to establish an independent inquiry into the allegations. The bill passed and the inquiry is due to be completed before the presidential inauguration in February.

Casting his vote in the capital, Seoul, Mr Lee thanked supporters for defending him from what he called "numerous negative campaigns".

"This time, we have to change the government without fail," he said.

'Truth and lies'

Earlier, Mr Chung had said a victory for Mr Lee would bring disgrace on the country.

"This election is a battle between truth and lies," he told journalists as he cast his ballot.

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Analysts believe Mr Lee could usher in a tougher stance towards North Korea.

He has said he wants to see more in return for the aid and trade given to Pyongyang as a result of the decade-long policy of engagement.

Rhee Q Taek, parliamentary leader of Mr Lee's Grand National Party, told AFP news agency that the results showed the "people's wish to rescue the economy by changing the government".

"People passed judgment on the Roh government and the liberals," he said.