Observers say he will likely try to align with other conservative forces, such as former Prime Minister Han Duck-soo, to prevent a split in conservative votes in a bid to boost prospects for a conservative win against Lee.
In a party primary that ended on Saturday, Kim won 56.5 per cent of the votes cast, beating his sole competitor, Han Dong-hun, the party said in a televised announcement.
Other contenders have been eliminated in earlier rounds.
The June 3 election is meant to find a successor to conservative President Yoon Suk-yeol, a PPP member who was impeached and removed from office in early April over his ill-fated December 3 imposition of martial law.
Kim has opposed parliament's impeachment of Yoon, though he said he respects a Constitutional Court ruling that formally dismissed Yoon as president in early April.
Yoon's impeachment is a major source of feuding within the People Power Party and a hot topic at the party's primary.
Han, who served as Yoon's first justice minister, leads a reformist yet minority faction at the PPP who joined the liberal opposition in voting to overturn Yoon's martial law decree and later impeach him.
Without the support of Han's faction members, an opposition-led impeachment motion on Yoon could not have passed through the National Assembly because opposition parties were eight votes short of a two-thirds majority to approve it.
Observers earlier predicted Han's nomination could help the party in obtaining more moderate, swing votes, who represent about 30 per cent to 40 per cent of voters in South Korea, are fed up with a severe political polarisation and oppose both Yoon and Lee.
Lee is the clear favourite to win the election, but he stands a total of five criminal trials over corruption and other charges.
If Lee becomes president, those trials will likely stop as he will enjoy presidential immunity from most criminal prosecutions.
Lee's campaign suffered a setback due to a recent Supreme Court decision to order a new trial on his election law charges.
It's unclear if he will face a court sentence that requires the suspension of his campaign before the June 3 vote, but he will likely grapple with an intense political offensive by his election rivals.
