As part a deal dating back to 1979, South Korea agreed to limit the range of any of its missiles to 180 kilometres, in exchange for having access to US missiles and missile technology, the Deutsche Presse Agentur (DPA) reported.
The agreement was struck during a Friday meeting between US President Joe Biden and South Korean President Moon Jae In.
Moon's security advisors described the move as a restoration of the country's "missile sovereignty." It remains unclear what, if any, changes South Korea will make to its defence posture under the new arrangement.
The two countries have refined the 1979 agreement multiple times in light of the nuclear threat from North Korea. Recently, South Korea had been allowed to use missiles with a range of up to 800 kilometres with warheads of up to 500 kilograms.
The two countries last year also removed restrictions keeping South Korea from using solid fuel, the use of which allows rockets to be made readier faster. The change in policy should clear the way for South Korea to launch its own espionage satellites.