Formula One supremo Bernie Ecclestone and Park Joon-yung, governor of South Korea's South Cholla province where a new circuit will be built, said the agreement will bring the race to one of the world's leading car exporting countries.
Ecclestone, who flew to Seoul after Sunday's Chinese Grand Prix in Shanghai, said he would help to bring up Korean Formula One drivers in the hope of having a Korean team take part in the race one day.
The Korea Auto Valley Operation, a joint venture between South Cholla province and the Korean F1 promoter M-Bridge Holdings, will build a Hermann Tilke-designed 5.45-km track in the southwestern region at a cost of 250 billion won ($264 million).
Ecclestone has been keen to secure new markets, with the first race in Turkey last year and in China and Bahrain in 2004.
None of those countries have local drivers or teams competing in Formula One at present.
Ecclestone has tried previously to bring Formula One to South Korea, striking a deal in 1996 with the Sepoong Engineering Construction Co Ltd to hold races at Kunsan City from 1998 to 2002.
The track was never built and Ecclestone won a subsequent court case in Britain allowing him to keep a payment of $11.75 million.