The SEAL special forces boarded the South Korean ship before dawn, freeing all the hostages and killing the pirates in cabin-to-cabin battles, they said. Five other pirates were captured.
"This operation demonstrated our government's strong will that we won't tolerate illegal activities by pirates any more," Lieutenant-General Lee Sung-Ho of the Joint Chiefs of Staff told a news briefing.
The South Korean skipper of the chemical freighter suffered a gunshot wound to his stomach during the raid but his condition is not life-threatening, the military said. No commandos were hurt.
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The rescue about 1,300 kilometres (800 miles) off northeast Somalia was seen as a major morale boost for the South's military. It has faced strong domestic criticism for a perceived weak response to North Korea's shelling of a border island last November.
President Lee Myung-Bak, who authorised the operation, said the military carried out the raid perfectly under difficult circumstances.
"We will not tolerate any activities that threaten the safety and lives of our people," he said.
Ship seized on January 15
The pirates seized the 11,500-ton ship and 21 crew members - eight South Koreans, two Indonesians and 11 from Myanmar - on January 15 in the Arabian Sea when it was en route to Sri Lanka from the United Arab Emirates.
Seoul ordered a destroyer on patrol in the Gulf of Aden to give chase and President Lee ordered "all possible measures" to save the crew.
General Lee said the commandos moved in after receiving information that the "mother ship" for the pirates was leaving a Somali port.
"Since we thought we could be in an extremely difficult situation if the pirates joined forces, we chose today to carry out the operation."
Lee praised the freighter's 57-year-old skipper Suk Hae-Kyun for his prudence. "Pirates sought to take the vessel to the Somalian coast fast but the skipper helped us earn time by manoeuvring the vessel in a serpentine manner."
To distract the pirates' attention, the destroyer fired warning shots and manoeuvred close to the hijacked vessel. A Lynx helicopter provided covering fire as the commandos stormed the ship.
The Koreans were assisted by a US carrier which also provided a helicopter to transfer the wounded Korean skipper.
"It was breathtaking news," said Suk Hyun-Wook, son of the 58-year-old skipper, describing his response to reports of the raid.
Kim Doo-Chan, 61, was also among the rescued crew. "I feel so relieved," his 28-year-old son Dong-Min told Yonhap news agency. "I'm ecstatic."
Rescue follows gun battle
The military said Friday's rescue followed a brief gun battle Tuesday, when the destroyer encountered pirates who had apparently left the South Korean freighter to try to seize a nearby Mongolian vessel.
The South Korean commandos aboard a speedboat and a Lynx helicopter were dispatched to rescue the Mongolian ship.
Tuesday's firefight left several pirates missing and believed killed, although their bodies have not been found, a JCS spokesmen said. Three commandos were slightly hurt.
Foreign Minister Kim Sung-Hwan broke the news at a New Year's reception Friday for the heads of foreign diplomatic missions in Seoul, bringing applause and cheers from the ambassadors, a foreign ministry official said.
The captured five pirates could be brought to South Korea or third countries for punishment, he said.
Piracy surges off lawless Somalia
The hijacking came two months after a supertanker belonging to the same company, Samho Shipping, was released after being held for seven months.
The 300,000-tonne Samho Dream and its 24 crew were freed only after the pirates were paid a ransom reported as a record $9 million.
Piracy has surged off lawless Somalia in recent years, and international warships patrol the area in a bid to clamp down on the problem. Pirates are currently holding 29 vessels and about 700 hostages.
In 2008 the French military became the first to respond militarily to piracy in the region, when marines raided the yacht Carre d'As and freed two hostages being held by seven Somali pirates. One pirate was killed and the other six captured.
In one of the most controversial rescues, Russian marines freed 23 crew barricaded on board a Russian tanker, the Moscow University. The pirates were later found dead and adrift in a small boat.
