Yoon declared martial law on Tuesday night in a televised address to thwart "anti-state forces" among his domestic political opponents. But outraged lawmakers rejected the decree, which was South Korea's biggest political crisis in decades. Yonhap news agency said the cabinet had agreed early on Wednesday to scrap the martial law.

Protesters outside the National Assembly parliament shouted and clapped. "We won!" they chanted, and one demonstrator banged on a drum.

Cho Kuk, head of a minor opposition party, met protesters outside parliament and said: "This isn't over. He put all the people in shock." He vowed to impeach Yoon by putting together votes from other parties.

Yoon's surprise declaration of martial law, which he cast as aimed at his political foes, was unanimously voted down by 190 lawmakers in parliament. His own party urged him to lift the decree. Under South Korean law, the president must immediately lift martial law if parliament demands it by a majority vote.

The crisis in a country that has been a democracy since the 1980s, and is a US ally and major Asian economy, caused international alarm.

Earlier, US Deputy Secretary of State Kurt Campbell said the United States was watching events in South Korea with "grave concern" and hoped that any political disputes would be resolved peacefully and in accordance with the rule of law. Some 28,500 US troops are stationed in South Korea to guard against the North.

After Yoon's announcement of martial law, South Korea's military said activities by parliament and political parties would be banned, and that media and publishers would be under the control of the martial law command.

Helmeted troops briefly tried to enter the parliament building. Parliamentary aides were seen trying to push the soldiers back by spraying fire extinguishers.

Yoon did not cite any specific threat from the nuclear-armed North, instead focusing on his domestic political opponents. It is the first time since 1980 that martial law has been declared in South Korea.

With AAP.