The Korea Space Launch Vehicle 1 is thought to have blown up 137 seconds after take-off, said science minister Ahn Byong-man.
The rocket lifted off from Goheung's Naro Space Centre at 1701 (0801 GMT).
But contact was lost as the rocket reached an altitude of 70 kilometres (44 miles).
(Communication was lost just two minutes after the KSLV-1 took off)
"Looking from the bright flash seen on the camera mounted on the tip of the rocket, it appears [the KSLV-1] exploded in flight during the first-stage ignition," said Mr Ahn.
Pictures on South Korean television appear to show the rocket's final moments, with the cameras following a white speck on its downward trajectory into the sea.
Analysts say the reported failure is a major setback for South Korea in what some observers have described as an "Asian space race".
Malfunction
The launch was South Korea's second attempt to put a satellite in space, after a launch in August 2009 failed.
The country had been hoping to become only the 10th in the world able to put satellites into space, and thereby gain a lucrative slice of the growing space launch industry.
This was South Korea's second attempt after the first, in August last year, also failed to place a satellite into orbit.
There were high expectations. The launch was carried live on major news networks, and crowds of people on beaches along the south coast whooped and danced as the rocket lifted off from the nearby launch base.
But failure is commonplace for any nation trying to develop a new rocket; some estimates put it as high as 50%.
South Korea had spent $400m on what was always known to be a high-risk mission to become one of only a handful of countries with an independent satellite launch capability.
So far it has come to nothing.
China, India and Japan have developed a launch capability; China has also sent three manned missions into space.
The KSLV-1, built partly in Russia and partly in South Korea, had cost 500 billion won ($400m; £275m).
The satellite - which had been intended to study the effects of climate change - should have separated from the rocket and deployed its solar panels some nine minutes after take-off, at an altitude of 302km.
The rocket had been due to take off on Wednesday, but lift-off was cancelled three hours before launch after fire extinguishing fluids were detected leaking from parts of the equipment.
South Korea's Ministry for Education, Science and Technology said thorough checks had confirmed the leaks did not affect the safety of the rocket and the launch had been rescheduled.
Weather conditions had been closely checked in the final hours before the latest launch. A spokesman for the Korea Aerospace Research Institute (Kari) said all faulty hardware had been replaced and steps taken to prevent a repeat of the earlier faults.
The rocket stood 33m (108ft) tall and was launched from the country's new spaceport on the southern tip of the Korean peninsula.
South Korea's first launch of the two-stage KSLV-1, in August last year, failed to place its satellite payload into the proper orbit.
Four months previously, an attempted space launch by North Korea was deemed to have failed when the US reported that both rocket stages had fallen into the Pacific Ocean.
The North's launch was seen as a cover for a long-range missile test, and prompted UN sanctions.
Pyongyang had voiced irritation at the South's rocket development, but most other powers in the region accepted that its attempt was part of a peaceful civilian programme.
BBC
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