Yoon earlier declared martial law in a late night televised address, claiming he would eradicate "shameless pro-North Korean anti-state forces".
After the parliament's 190-0 vote to lift the declaration, the National Assembly Speaker Woo Won Shik declared that MPs "will protect democracy with the people".
Soldiers attempted to enter the parliament in Seoul after the president's martial law declaration. (AP PHOTO)
Woo called for police and military personnel to withdraw from the Assembly's grounds.
Live television footage showed troops apparently tasked with imposing martial law briefly attempting to enter the assembly building, and parliamentary aides were seen trying to push the soldiers back by spraying fire extinguishers.
Crowds of people outside parliament erupted in applause and cheers as MPs voted to reject martial law.
Shortly after Yoon made his announcement on live TV, people began gathering outside the parliament building, some of them shouting: "Withdraw emergency martial law!"
"Arrest Yoon Suk-yeol," shouted others.
People are now calling for President Yoon Suk Yeol to be imprisoned — Raphael Rashid (@koryodynasty) pic.twitter.com/sbE7bVtNYTDecember 3, 2024
Yoon said on Tuesday night that opposition parties had taken the parliamentary process hostage.
He vowed to eradicate "shameless pro-North Korean anti-state forces" and said he had no choice but to take the measure to safeguard constitutional order.
"I declare martial law to protect the free Republic of Korea from the threat of North Korean communist forces, to eradicate the despicable pro-North Korean anti-state forces that are plundering the freedom and happiness of our people and to protect the free constitutional order," Yoon said.
The 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.
All 190 MPs who participated in a vote opposed President Yoon Suk-yeol's martial law declaration. (Mick Tsikas/AAP PHOTOS)
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.
President Yoon Suk-yeol said in a televised speech that martial law was necessary. (AP PHOTO)
Yoon's move was vocally opposed even by the leader of his own People Power Party, Han Dong-hoon, who was present for the vote in parliament and who has clashed with Yoon over the president's handling of recent scandals.
Yonhap reported that the entrance to the parliament building was blocked.
"Tanks, armoured personnel carriers and soldiers with guns and knives will rule the country," Lee Jae-myung, leader of the opposition Democratic Party, said in a online video.
"The economy of the Republic of Korea will collapse irretrievably. My fellow citizens, please come to the National Assembly."
Yoon cited a motion by the Democratic Party, which has a majority in parliament, this week to impeach some of the country's top prosecutors and its rejection of a government budget proposal.
South Korea's ministers on Monday protested the move by the opposition last week to slash more than 4 trillion won ($A4.3 trillion) from the government's budget proposal.
Yoon said that action undermines the essential functioning of government administration.
Yoon - whose approval rating in polls has dipped in recent months - has struggled to push his agenda against an opposition-controlled parliament since taking office in 2022.
with AP and Yonhap
