The insurance ban makes it almost impossible to ship Iranian oil as most insurance is undertaken by EU-based companies and the move comes as part of a series of measures designed to put pressure on Iran to halt what the United States and others say is a nuclear weapons programme.
South Korea depends on the United States for security, but it has no natural resources and has been scrambling for alternative crude supplies to replace those from a country that supplied 9.4 percent of its needs in 2011.
"South Korea's imports of Iranian oil will be suspended, as the EU will suspend crude imports from Iran and also halt its insurance and reinsurance cover on the crude imports from July 1," a joint statement from the economy, finance and foreign affairs ministries said.
"The government will continue to make efforts to minimise impacts on domestic industry and the economy including oil supply, and exports to Iran, although the imports of Iranian oil are suspended," the statement said.
The official confirmation follows a Reuters story on May 21 that had cited sources as saying South Korea would become the first of Iran's major Asian customers to halt oil purchases.
EU governments on Monday approved an embargo on Iranian oil to start on July 1 and warned Iran that more pressure could be put in place if it continued to defy international demands for limits on its nuclear programme.
Around 90 percent of the world's tanker fleet is covered by Western-based protection and indemnity (P&I) clubs, which insure against personal injury and environmental clean-up claims.
South Korea is the world's fourth largest buyer of Iranian crude oil.
Japan will provide sovereign guarantees for Iranian shipments, China has asked Iran to deliver the crude while India has said it would allow state refiners to import Iranian oil, with Tehran arranging shipping and insurance, from July 1.
South Korea's imports of Iranian crude oil fell nearly 40 percent in May from a year earlier, according to official data, reflecting Seoul's efforts to reduce purchases in return for a waiver from U.S. sanctions that could have hit its companies.
South Korea imported 29.22 million barrels from Iran during the first five months of the year, or about 192,000 barrels per day, down almost 16 percent from a year ago, data from the state-run Korea National Oil Corp showed on Monday.
To plug the Iranian supply cuts, South Korea has turned to other Middle Eastern producers, including the world's top exporter Saudi Arabia, the United Arab Emirates (UAE), Kuwait and Qatar.
The United States earlier this month extended exemptions from its sanctions on Iran's oil trade to seven more countries including South Korea.
Of South Korea's four refiners, only SK Energy and Hyundai Oilbank import Iranian crude. Sources said both refiners will stop importing from Iran when the EU insurance embargo takes effect from July 1.
The United States and the European Union accuse Iran of trying to build nuclear weapons. Tehran says the programme is strictly for civilian purposes.
South Korea has also imposed curbs on exports of goods to Iran to reduce the risks of payment defaults.
Korean exporters usually receive payments via won-denominated deposits of the Iranian central bank that are generated by Iran's oil sales here.