Labor Minister Kim Dae-Hwan expressed regret that the government was forced to invoke the powers, last used in 1993 to end a strike at the country's largest automaker, Hyundai Motor.
"The emergency arbitration is inevitable as the strike is dealing a blow to our exports and tourism," Kim said.
National trade federations called for strikes to protest the move, which came after last-minute talks between pilots and management broke down -- mainly over flying hours and monthly days off.
Kim had threatened the pilots with "stern measures" if they continued their stoppage in defiance of the arbitration law. Violators can be jailed for up to two years.
Some 1,800 riot police were deployed at a resort hotel at Mount Songni, 180 kilometers south of Seoul, where 350 of the pilots had been holed up since the strike began on July 17.
The pilots said they will leave the hotel at 1300 GMT today and return to work tomorrow.
The Korea Employers Federation welcomed the government's decision, saying it is "inevitable to prevent further damage to our economy."
But the Korean Confederation of Trade Unions warned it will mobilize its transport union members including truck drivers for a strike at a date to be disclosed later.
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