The DongA Ilbo newspaper cited unidentified government sources as saying South Korea decided to "lend" the ammunition instead of selling, to minimise the possibility of South Korean shells being used in the Ukraine conflict.
President Yoon Suk Yeol has said a South Korean law that forbids supplying weapons to countries engaged in conflict makes it difficult to send arms to Ukraine.
The newspaper said the shells would be used primarily by the United States to fill its stockpile.
Having bought 100,000 such shells last year, the U.S. government had asked to buy the same amount or more in February, but the South Korean government sought another way to supply the ammunition.
"We've opted to significantly increase the volume of shells but take the rental method, after exploring how to respond to the request of the blood ally in good faith while sticking to the government principle of not providing lethal weapons to Ukraine," one source was quoted as saying.
Both Seoul and Washington have confirmed they were negotiating an artillery supply deal, but there has been no official word on whether an agreement was finalised. The newspaper said the agreement was reached last month.
South Korea's defence ministry said the allies have been exploring ways to support Ukraine but declined to confirm specific discussions.
The U.S. State Department did not immediately offer comment.
Foreign Minister Park Jin told reporters that he could not confirm the newspaper report, but added that the government position against providing lethal aid to Ukraine remained unchanged.
The report came after leaked highly classified U.S. military documents highlighted South Korea's difficulties dealing with pressure from Western allies to help with the supply of military aid to Ukraine.
South Korea is a key U.S. ally and major producer of artillery ammunition but has sought to avoid antagonising Russia in light of economic ties and its influence over North Korea.
'Grapped with request'
South Korea's Yoon, who is visiting Washington this month for a summit with U.S. President Joe Biden, has said Seoul had not provided any lethal weapons to Ukraine but would expand humanitarian assistance instead.
The country's assistance to Ukraine was included in classified documents that were leaked online this year and spotlighted in reporting during the last week.
In the documents, top South Korean presidential officials worried about a plan to sell shells to Washington, saying they might be diverted to Ukraine despite Seoul's position that the U.S. military should be the "end user".
One leaked bulletin, marked "Top Secret" and seen by Reuters, said Seoul as of early March "grappled with the U.S. request to provide artillery ammunition to Ukraine".
Former national security adviser Kim Sung-han "suggested the possibility of selling the 330,000 rounds of 155mm munitions to Poland, since getting the ammunition to Ukraine quickly was the ultimate goals of the United States", it said.
Reuters was unable to independently verify the authenticity of the documents. U.S. officials have said some appeared to have been modified.
Seoul and Washington were scrambling to contain the fallout of the leak, amid suspicions the U.S. could have been spying on South Korea, one of its most important allies.
Speaking at a parliamentary session, Foreign Minister Park said unauthorised wiretapping would be considered "problematic" but declined to comment when asked if the U.S. confirmed to South Korea that there was no spying on its presidential office.
Park said he was first briefed on the suspected leak of U.S. documents on the weekend following media reports.