Lee will be awarded the Grand Order of Mugunghwa, the highest order for the country, which is allowed to be given to the incumbent president and his or her spouse, and a former or incumbent top leader and his or her spouse from allied countries for their contribution to South Korea's national development and security, according to the ministry.
The Mugunghwa medal is made of some 712 grams of gold, which is valued at 48 million won (US$43,763) according to Tuesday's market price.
After the Cabinet approval, the designation of the honor will be finalized by the president himself, which has sparked controversy over the "self acclamation."
"Conferring the medal is a long-time practice, with relevant law being passed in 1973," said a ministry official. "Previously, the presidents used to receive the medal upon their inauguration. But Lee's predecessor late President Roh Moo-hyun became the first leader to award it right before his retirement, and Lee will follow suit," a ministry official said.
However, it is not yet decided if the ceremony will be held while Lee is in office or after his retirement, according to the Prime Minister's Office.
Lee will leave office after his five-year term on Feb. 25 upon the inauguration of President-elect Park Geun-hye.
South Korean President Lee Myung-bak (L) and first lady Kim Yoon-ok. (Yonhap file photo)
The Cabinet also approved the plan to confer an award to 64 scientists who participated in the successful launch of the country's first space rocket, Naro, putting the 100-kilogram Science and Technology Satellite-2C into orbit in January.
The Cabinet had planned to decide whether to give a medal to 104 officials set to resign from their current posts at the government, including Prime Minister Kim Hwang-sik, for their contribution to social development while serving the country, but the approval was delayed "as more time is required to review relevant matters," according to the PMO.
Meanwhile, Tuesday's Cabinet meeting was the first held via video conference to connect the government complexes in the newly administrative city of Sejong to the capital city of Seoul.
After some government offices were relocated and others are set to move to Sejong, some 150 kilometers south of Seoul, there has been a strong push to develop a teleconference system for government meetings. The first-ever video conference was held last month for the regular vice-ministerial level meeting.
The first phase of the movement to Sejong was finished last year, involving some 5,000 officials in six ministries. Most of the ministries that moved to the new city were originally located in Gwacheon, just south of the capital city.