The surprise declaration of martial law late on Tuesday caused a stand-off with parliament, which rejected his attempt to ban political activity and censor the media, as armed troops forced their way into the National Assembly building in Seoul.
The main opposition Democratic Party (DP) called for Yoon, who has been in office since 2022, to resign or face impeachment.
President Yoon Suk-yeol made a late-night declaration of martial law to combat "anti-state forces". (AP PHOTO)
Six South Korean opposition parties later submitted a bill in parliament to impeach Yoon, with voting set for Friday or Saturday.
"It was clearly revealed to the entire nation that President Yoon could no longer run the country normally. He should step down," senior DP MP Park Chan-dae said.
There were deep divisions in Yoon's ruling People Power Party as well, as its leader called for Defence Minister Kim Yong-hyun to be fired and the entire cabinet to resign.
Yoon said in a televised speech late on Tuesday that martial law was needed to defend the country from pro-North Korean anti-state forces, and protect the free constitutional order, although he cited no specific threats.
Chaotic scenes ensued as troops tried to seize control of the parliament building, parliamentary aides sprayed fire extinguishers to push them back, and protesters scuffled with police outside.
Staff sprayed fire extinguishers to block soldiers entering the main hall of the National Assembly. (AP PHOTO)
The military said activities by parliament and political parties would be banned, and media and publishers would be under the control of the martial law command.
But MPs defied the security cordon and within hours of the declaration, South Korea's parliament, with 190 of its 300 members present, voted unanimously for martial law to be lifted, with 18 members of Yoon's party present.
The president then rescinded the declaration of martial law, about six hours after its proclamation, leading to cheers from protesters outside the National Assembly.
"There are opinions that it was too much to go to emergency martial law, and that we did not follow the procedures for emergency martial law, but it was done strictly within the constitutional framework," a South Korean presidential official told Reuters by telephone.
Seoul appeared normal on Wednesday despite the overnight drama, but more protests were expected, as South Korea's largest union coalition planned to rally in Seoul and vowing to strike until Yoon resigns.
South Korean opposition parties have submitted a bill to impeach President Yoon Suk-yeol. (AP PHOTO)
Financial markets were volatile, with South Korean stocks falling about 1.3 per cent and the won stable but close to a two-year low.
Finance Minister Choi Sang-mok and Bank of Korea Governor Rhee Chang-yong held emergency meetings and the finance ministry promised to prop up markets if needed.
The National Assembly can impeach the president if more than two-thirds of MPs vote in favour, followed by a trial by the constitutional court.
If Yoon resigned or was removed from office, Prime Minister Han Duck-soo would fill in as leader until a new election was held within 60 days.
"South Korea as a nation dodged a bullet, but President Yoon may have shot himself in the foot," Danny Russel, of the Asia Society Policy Institute think tank in the United States, said of the first martial law declaration in South Korea since 1980.
More rallies are expected in South Korea as pressure grows on President Yoon Suk-yeol to step down. (EPA PHOTO)
US Secretary of State Antony Blinken said he welcomed Yoon's backdown and said Washington expected "political disagreements to be resolved peacefully and in accordance with the rule of law".
Defence talks and joint military exercises between the US and South Korea - which hosts tens of thousands of American troops as a legacy of the 1950-1953 Korean War - were postponed.
Yoon, a career prosecutor, squeezed out a victory in the tightest presidential election in South Korean history in 2022, riding a wave of discontent over economic policy, scandals and gender wars.
But he has been unpopular, with his support ratings hovering about 20 per cent for months. His People Power Party suffered a landslide defeat at a parliamentary election in April, failing to wrest control from opposition parties that captured nearly two-thirds of the seats.
Martial law has been declared more than a dozen times since South Korea was established as a republic in 1948.
