A tearful television announcer dressed in black said the 69-year old had died on Saturday of physical and mental over-work on his way to give "field guidance" - a reference to advice dispensed by the "Dear Leader" on his trips to factories, farms and military bases.
Kim Jong-un, Kim Jong-il's youngest son, was named by North Korea's official news agency KCNA as the "great successor" to his father, which lauded him as "the outstanding leader of our party, army and people."
Video from Chinese state television showed residents of Pyongyang, the North Korean capital, weeping while KCNA reported people were "writhing in pain" from the loss.
"We will have victory in our revolution today and tomorrow because we have comrade Kim Jong-un," KCNA quoted 55-year-old Ho Song-chol as saying.
Though people were crying on the streets of Pyongyang, life appeared to be going on largely as normal with light traffic and an occasional tram or trolley bus passing by in weak winter sunshine.
Little is known of Jong-un who is believed to be in his late 20s and was appointed to senior political and military posts in 2010.
KCNA said the elder Kim died at 8:30 a.m. on Saturday (11:30 p.m. British time on Friday) after "an advanced acute myocardial infarction, complicated with a serious heart shock." Kim had suffered a stroke in 2008, but had appeared to have recovered.
South Korea, still technically at war with the North, placed its troops and all government workers on emergency alert but Seoul's Defence Ministry said there were no signs of any unusual North Korean troop movements and President Lee Myung-bak called for people to carry on with their normal lives.
Lee held talks with President Barack Obama over the telephone as the United States is the main guarantor of South Korea's security. Seoul was also due to hold talks with government officials in Tokyo later in the day.
"Up until tonight, if anybody had asked you what would be the most likely scenario under which the North Korean regime could collapse, the answer would be the sudden death of Kim Jong-il," said Victor Cha, a Korea expert with the Center for Strategic and International Studies think-tank in Washington.
"And so I think right now we're in that scenario and we don't know how it's going to turn out."
The White House said President Barack Obama had been notified of the reports of Kim's death and it was closely monitoring and in touch with South Korea and Japan.
The United States was committed to stability on the Korean peninsula as well as to its allies, the White House press secretary said.
Japanese Prime Minister Yoshihiko Noda told ministers at a special security meeting to prepare for the unexpected, including on border affairs, Japan's top government spokesman said.
China, North Korea's only major ally, expressed grief and offered condolences.