The decision on the MUAV program was taken to strengthen South Korea's ability to monitor the North's missile and nuclear activities, the report said.
The South's Agency for Defense Development had developed a prototype of the MUAV in 2006, but the program was suspended in 2011 under Seoul's plans to buy high-altitude UAVs, the report said.
The latest decision comes after scientists involved in the surveillance of the North completed exploratory development on the MUAV late last year, the report said.
"Following the successful exploratory development of MUAV, full-scale development will start this year," the source told Yonhap.
The MUAV is designed to fly at an altitude of up to 10 kilometers (6.2 miles) with radar scanning ability of up to 100 kilometers (62 miles).
Yonhap said South Korea also is interested in high-altitude, long-endurance "Global Hawk" drones for intelligence missions on North Korea. South Korea is set to take over wartime operational control from Washington at the end of 2015.
A South Korean air force official told Yonhap having both imported high-altitude UAVs and domestically developed MUAVs would enhance surveillance capability and allow the country to have an advanced missile defense system.