Gatherings of more than 50 will be banned in the capital Seoul and surrounding areas from Tuesday, while gyms and karaoke bars be closed.
On Sunday 631 new infections were reported in one day, the highest number in nine months.
The country was widely praised for its virus response earlier this year, with aggressive testing and contact tracing.
But the authorities have struggled in recent weeks. The number of active cases in South Korea now stands at 7,873, and there are concerns about rising numbers in hospitals.
There have now been 37,546 cases in total, and 545 deaths.
Health minister Park Neung-hoo said there was a risk of the virus spreading if nothing was done.
"We concluded that this is a dangerous situation on the verge of expanding into a nationwide pandemic," he told Reuters news agency.
Restrictions would also be tightened in other parts of the country, Mr Park said, but at a lower level. They will last at least three weeks.
On Saturday, Seoul's municipal government introduced a curfew, with most businesses including restaurants, bars and cafes being forced to close at 9pm.