The vessel and its crew will be released “at the military boundary in the East Sea”, North Korean state news agency KCNA reported.
The decision was made after the crew apologised for the “offence”, it added.
It comes at a time of heightened tension in the region with both sides running a series of military exercises.
North Korea said the release of the fishing vessel, due later on Friday, follows an admission of wrongdoing from those on board, who it said had “repeatedly asked for leniency”.
An investigation, the North added, had “proved” that the fishermen had entered North Korean waters last Saturday.
A South Korean government spokesman said it was a “relief” that the crew would be returned, reported Reuters news agency.
It is not uncommon for fishing boats from both sides to drift into waters not under their country’s control.
In August 2010, a South Korean fishing boat went missing in the Sea of Japan and was temporarily detained by North Korea.
The North said it was seized because it was poaching in its exclusive economic zone.
The latest incident comes amid ongoing military exercises in the region as North Korea seeks to realise its nuclear ambitions and the South deploys a US-backed missile defence system.
Earlier this month, the US and South Korea also began joint military exercises in waters surrounding the Korean peninsula, involving fighter jets, destroyers and aircraft carriers.
The drills regularly anger the North, and Pyongyang has in the past denounced them as a “rehearsal for war”.
On Friday, US Defence Secretary James Mattis flew into Seoul for annual defence talks with South Korea, as part of a tour of Asia.
He earlier told reporters that his Asia visit was about keeping the North Korean effort “firmly in the diplomatic lane for resolution”.
Separately, the US has imposed sanctions on seven North Koreans and three entities over “flagrant” human rights abuses.
Treasury secretary Steven Mnuchin said those sanctioned included diplomats placed in China and Vietnam who had taken part in the forced repatriation of North Korean asylum-seekers.
Military officials and “financial facilitators” who channel “foreign currency earned through forced labour operations” back to North Korea were also targeted, he added.
Editor’s Note: This post was originally published in bbc.com