Minister of Maritime Affairs and Fisheries Lee Ju-young made the announcement after holding a meeting with Prime Minister Chung Hong-won, Xinhua reported.
More than two-thirds of the families of those still missing voted in favour of ending the search operation, in response to which the government finally decided to conclude it.
Meanwhile, a South Korean court on Tuesday handed a 36-year prison sentence to the captain of the sunken ferry, saying he was professionally negligent and abandoned his passengers during the disaster. The chief engineer got 30 years, and 13 other crew members were sentenced to up to 20 years in prison.
Coast guard, military have conducted search operations since April 16
Coast guard, military and civilian divers have conducted search operations since April 16 when the 6,825-tonne ferry "Sewol" sank off the south-western cost of South Korea.
Nine remain missing, with 295 people confirmed dead. The body of one female student was recovered Oct 28, 102 days after a body was found July 18.
Conditions have become difficult to continue the underwater search as the winter season is fast approaching, officials said.
The water temperature is much lower, and the ferry has sunk more than 40 metres deep, they added.