The agreement, signed during a period of warmer ties, was already largely void as Seoul had partially suspended it last year in response to North Korea putting a spy satellite into orbit, prompting Pyongyang to say it would not honour it at all.
But Seoul's security officials said that respecting even some portions of the deal was hindering their ability to defend against the North's provocations, which include floating nearly 1,000 balloons carrying garbage such as cigarette butts and manure across the border last week.
President Yoon "has just approved the 'September 19 (2018) Military Agreement Suspension Proposal'," which the cabinet had already signed off on, his office said in a statement.
Yoon's approval means the agreement is suspended with immediate effect.
The move will allow the South to resume live fire drills and re-start loudspeaker propaganda campaigns along the border with the North.
The South has used the loudspeaker campaigns -- considered a psychological warfare tactic dating back to the 1950-53 Korean War -- as a countermeasure to what it deems serious North Korean provocations.
For example, it last deployed them from 2016, after Pyongyang conducted its fourth nuclear test, until calling them off days before the historic 2018 inter-Korean summit where the tension-reducing military deal was signed.
The loudspeaker campaigns involve South Korea using large megaphones to broadcast everything from K-pop to anti-regime propaganda into areas close to the demilitarised zone separating the two countries, which remain technically at war.
The broadcasts infuriate Pyongyang, which has previously threatened artillery strikes against the loudspeaker units unless they were switched off.
Pyongyang said the trash balloons were retaliation for similar missives sent northwards by South Korean activists.
An anti-Pyongyang group in the South revealed on Monday that they had sent balloons carrying around 2,000 USB flash drives containing songs by South Korea's mega trot singer Lim Young-woong, as well as other K-pop and K-dramas, into the North on May 10.
The hermit country is extremely sensitive about its people gaining access to South Korea's flourishing popular culture.
According to a United Nations report, Pyongyang enacted a law in 2020 to punish anyone possessing or distributing a large amount of media content from the South with life imprisonment or even the death penalty.
Seoul has also said Pyongyang attempted to jam GPS signals for several days last week.
Pyongyang called off the balloon bombardment Sunday, saying it had been an effective countermeasure -- but warned that more could come if South Korean activists resumed their campaigns against the North.
- 'Truths and love' -
Seoul's Joint Chiefs of Staff said the suspension "restores all military activities" in areas near the inter-Korean border.
JCS spokesperson Lee Sung-jun said that mobile loudspeakers could be operational "right away" while fixed units could take days to install.
"Just because North Korea is dumping trash doesn't mean we can do the same. That would be a criminal act," he added.
Under the 2018 agreement, both countries agreed to "completely cease all hostile acts," including the distribution of propaganda leaflets from the South.
South Korea's parliament criminalised sending leaflets to the North in 2020 but the law -- which did not deter the activists -- was struck down last year as a violation of free speech.
Activist Park Sang-hak told AFP that his group plans to send 5,000 USB flash drives containing K-dramas and more of Lim's music, along with 200,000 leaflets, starting Thursday.
During the Covid-19 pandemic, Park, a North Korean defector also behind the May 10 balloon launch, said his group had dispatched millions of Tylenol and Vitamin C tablets, 140,000 masks, as well as cash and K-content filled flash drives to the North.
"We sent facts and truths, love, medicine, $1 bills, dramas, and trot music. However, in return, the North has sent us filth and trash," he said.
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