In his Cabinet meeting, called the designation "a very critical step" that he said 'would start right now'.
The president said new sanctions were on the way for North Korea, invoking, Otto Warmbier, an American college student who died days after his return to the USA earlier this year.
"Today, the United States is designating North Korea as a state sponsor of terrorism", Trump said. He says, "We're hopeful this period will continue".
Relations between the US and North Korea have been fraught ever since President Trump took office.
North Korea will join Iran, Sudan and Syria on the blacklist.
However, lawyers said there had to be more than one incident, and there was disagreement over whether the treatment of American student Otto Warmbier, who died of injuries suffered in North Korean custody, constituted terrorism.
"This designation will impose further sanctions and penalties on North Korea. and supports our maximum pressure campaign to isolate the murderous regime", Trump said.
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A USA intelligence official who follows developments in North Korea expressed concern that the move could backfire, especially given that the basis for the designation is arguable.
U.S. officials involved in the internal deliberations said there was no debate over whether the February killing of Kim's half brother Kim Jong Nam was a terrorist act.
Experts believe Pyongyang is within months of such a threshold, having carried out six nuclear tests since 2006 and test-fired several types of missiles, including multi-stage rockets.
President Donald Trump has announced the U.S. is putting North Korea's "murderous regime" on America's terrorism blacklist. The North has not been publicly implicated in a terror attack of that scale since.
The North Korean newspaper then warned Mr Trump not to meddle in North Korean affairs following the recent escalation in tensions between Washington and Pyongyang.
Kim's government insists it will defy global sanctions to develop a capability it believes is essential to defending itself from the threat of United States and South Korean invasion.
Bush chose to remove North Korea from the list as part of a bid to save a nuclear deal with the country.