Trump announced the move Monday during a public meeting with his Cabinet at the White House and said the Treasury Department will announce new sanctions against North Korea on Tuesday.
"Today the United States is designating North Korea as a state sponsor of terrorism. Should have happened a long time ago. Should have happened years ago," Trump said.
North Korea was removed from the list by President George W. Bush in 2008.
South Korea, the US' ally on the peninsula, said its military is "maintaining a firm readiness posture" for reaction from North Korea following the move.
South Korea's Defense Ministry spokesman Moon Sang-gyun said so far Seoul had not observed any unusual activity across the border but was maintaining the heightened alert in case of North Korean "provocations."
North Korean state media published a strong rebuke of Trump on Tuesday, but it wasn't clear if it was in direct response to the terror designation.
"The hideous crimes committed by the lunatic president of the US are a blatant challenge to the dignity of the supreme leadership of the DPRK," the article in Rodong Sinmun said.
"Those who trample down and make a mockery of the DPRK's dignity can never go scot-free," it added.
North Korea state media regularly publishes damning comments about the US and its allies.
In a briefing Tuesday, Chinese foreign ministry spokesman Lu Kang cautioned that the "current situation on the Korean Peninsula is highly complex and sensitive."
He said that the Chinese government hopes "to see all the relevant parties do more to ease tensions, and return to the negotiating table."
Japanese Prime Minister Shinzo Abe said he welcomed the move and hopes it "raises the pressure" on North Korea to denuclearize.
Australia's Prime Minister Malcolm Turnbull also said he backed the move, adding that the designation "mirrors the determination of the international community on bringing North Korea back to its senses."
Trump: Pyongyang guilty of repeated acts of terror
Trump said that North Korea has "repeatedly" sponsored acts of terrorism, including "assassinations on foreign soil."
"This designation will impose further sanctions and penalties on North Korea ... and supports our maximum pressure campaign to isolate the murderous regime," Trump said.
Secretary of State Rex Tillerson has also determined that the North Korean regime has repeatedly provided support for acts of international terrorism, according to a State Department official -- noting the government has been implicated in assassinations on foreign soil.
"As part of the administration's maximum pressure strategy, we have asked all countries around the world to put diplomatic and economic pressure on the DPRK, whose regime threatens international peace and security with its unlawful nuclear and ballistic missile development, dangerous support for international terrorism and other malicious activities," the official told CNN.
"'Kim Jong Un must realize that the only path to a secure, economically prosperous future is to abandon his unlawful nuclear and ballistic missile development and support for international terrorism and rejoin the international community," the official said.
Tillerson acknowledged that the designation will bring few new sanctions beyond those already imposed, noting during the White House briefing on Monday that "we already have many of these actions in place."
But he also said the decision sends a message to the North Korean regime about the US' resolve and hopes it will "disrupt and dissuade" certain actors from doing business with North Korea.
Trump said new sanctions to be announced over the coming weeks, including Tuesday by the Treasury Department, will bring US sanctions against Pyongyang to their highest level ever.
The question of whether Trump would reinstall North Korea on the list hung over the President's recent Asia trip.
Trump told reporters early in his visit that his administration would make an announcement on North Korea "very soon" and White House press secretary Sarah Sanders told reporters that the announcement would come "at the end of the trip."
United Nations spokesman Farhan Haq said the UN has "nothing to say" about the US designation of North Korea as a state sponsor of terrorism.
"It's not our list," the deputy spokesman said.
It became clear during Trump's time abroad that his administration viewed North Korea as a rogue nation that engages in terrorist acts.
During a fiery speech in South Korea, Trump described North Korea as an out-of-control country led by Kim Jong Un, whom he cast as a maniacal and deranged man.
"The regime has made numerous lethal incursions in South Korea, attempted to assassinate senior leaders, attacked South Korean ships and tortured Otto Warmbier, ultimately leading to that fine young man's death," Trump said.
Leaning into the likelihood that Trump would decide to reinstate North Korea's spot on the list, a senior administration official told reporters that taking North Korea off the list "was one of the things that a previous administration lifted ... as part of a hopeful attempt to lure them into reversing the threat. And, of course, that didn't work out."
The official added that the country "clearly fit the criteria for a state sponsor of terror in a previous administration."
"Today's designation is long overdue as North Korea continued its sponsorship of terrorism. Pyongyang's use of nerve agent to kill Kim Jong Nam, the half-brother of North Korean leader Kim Jong Un, is the most visible example of North Korea's attacks on dissent overseas," according to Anthony Ruggiero, a former deputy director of the Treasury Department and an expert in the use of targeted financial measures for Foundation for Defense of Democracies.
"A few years ago, after North Korea's cyberhack of Sony Pictures, it threatened a 9/11-style attack against US movie theaters," Ruggiero said. "The Kim regime should not have been removed from the list in 2008 and the US government should have relisted it sooner than today."
But according to Mintaro Oba -- a former Korea desk officer at the State Department -- relisting North Korea may not yield significant progress in the administration's pressure campaign.
"Re-designating North Korea as a state sponsor of terrorism doesn't add much to our efforts to pressure North Korea, but it is an action with symbolic value that will make it harder to get on a path toward denuclearization," Oba told CNN. "It will be seen in Pyongyang as confirming the United States is not serious about negotiations."
"I expect North Korea to react as it usually does -- with aggressive rhetoric in state media but nothing rash or unusual," he added.
Tillerson also noted on Monday that the move to designate North Korea as a state sponsor of terrorism was a symbolic one that "points out again what a rogue regime this is and how brutal this regime is, and how little they care for the value of human life."
"I've said the practical effects may be limited, but we hopefully we're closing off a few loopholes with this," Tillerson told reporters on Monday.
Under sanctions legislation signed by Trump in August, the State Department was required to report to Congress earlier this month whether it will re-designate North Korea.
The State Department, which was facing bipartisan calls to relist the country in the face of growing nuclear threats from Pyongyang, opted to delay the decision until after the President's trip.
House Foreign Affairs Committee Chairman Rep. Ed Royce applauded the administration's decision to relist North Korea as a state sponsor of terrorism on Monday.
"Over the past year alone, Kim Jong Un and his regime brazenly assassinated his brother with a chemical weapon and brutally tortured Otto Warmbier, leading directly to his tragic death," the California Republican said in a statement.
"These aren't isolated incidents, but are examples of a consistent pattern of terror. The regime also continues its push to develop nuclear weapons and intercontinental ballistic missiles, threatening global security," Royce added.
Republican support for the move comes as little surprise to Oba, who pointed out that many conservatives have long called for re-designating North Korea as a state sponsor of terrorism.
"The desire to do something after the tragic case of Otto Warmbier gave more force to those calls. In a way, the administration is checking a box for North Korea hawks at home," he told CNN.
Prior to today's decision, only three countries -- Iran, Sudan and Syria -- were labeled state sponsors of terror by the United States. A country must "repeatedly provide support for acts of international terrorism" to get the label from the US government.
Such a designation carries significant sanctions against the country's ability to receive US foreign assistance
and puts a ban on defense exports and sales. It also allows the United States to punish people or countries who trade with the designated countries.
Countries can be removed from the list.
Former President Barack Obama removed Cuba from the list in 2015 and Bush, in addition to North Korea, removed Libya in 2006 and Iraq in 2004.
Bush decided to remove North Korea from the list as part of a bid to save a nuclear deal with the country. That bid fell through, and North Korea has continued to drive toward building a nuclear bomb capable of hitting its neighbors and the United States.
Thae Yong-ho, a former high-ranking North Korean official who defected to South Korea, endorsed adding North Korea back to the state sponsor of terrorism list during testimony before the House Foreign Affairs Committee earlier this year.
"Once relisted, it will be easier to drive them from global financial systems and convince other world partners to detect the channels North Korea uses to fund its nuclear development," Thae said.
Returning the country to the list will also increase the effectiveness of sanctions, he added.
Thae was No. 2 in the North Korean embassy in London before he escaped with his wife and two sons, arriving in South Korea in 2016.