It is a blow for North Korea's new young leader, who faces international outrage over the attempt.
The isolated North, using the launch to celebrate the 100th birthday of the dead founding president Kim Il-sung and mark the rise to power of his grandson Kim Jong-un, is now widely expected to press ahead with its third nuclear test to show its military strength.
"The possibility of an additional long-range rocket launch or a nuclear test, as well as a military provocation to strengthen internal solidarity is very high," a senior South Korean defence ministry official told a parliamentary hearing.
The two Koreas are divided by the world's most militarised border and remain technically at war after an armistice ended the Korean War in 1953.
The United States and Japan said the rocket, which they claimed was a disguised missile test and the North said was to put a satellite into orbit, crashed into the sea after travelling a much shorter distance than a previous North Korean launch.
Its failure immediately raised questions over the impoverished North's reclusive leadership which maintains one of the world's largest standing armies but which cannot feed its people without outside aid, largely from its solitary powerful backer, China.
"(There is) no question that the failed launch turns speculation toward the ramifications for the leadership in Pyongyang: a fireworks display gone bad on the biggest day of the year," said Scott Snyder of the Council on Foreign Relations.
In a highly unusual move, the North, which still claims success with a 2009 satellite that others say failed, admitted in a state television broadcast seen by its 23 million people that the latest satellite had not made it into orbit.
The failure is the first major and very public challenge for the third of the Kim dynasty to rule North Korea just months into the leadership of a man believed to be in his late 20s.
"It could be indication of subtle change in the North Korean leadership in how they handle these things, something that may be different from the past," said Baek Seung-joo of the Korea Institute of Defense Analyses a thinktank affiliated with South Korean Defence Ministry.
"I mean it would have been unthinkable for them to admit this kind of failure in the past, something that could be seen as an international humiliation. The decision to have come out with the admission had to come from Kim Jong-un."
Embarrassingly, the rocket flew for just a few minutes covering a little over 100km to explode over a sea separating the Korean peninsula and China, far less than the last rocket in 2009 that travelled 3800km, alarming Japan which it over-flew.
The launch is in breach of United Nations Security Council sanctions and drew condemnation from the United States, Russia, South Korea and Japan and threats to tighten already harsh sanctions aimed at stopping Pyongyang developing nuclear weapons.
The concern is that North Korea is using launches to perfect the kind of technology that would enable it to build a missile capable of delivering a nuclear warhead to the United States.
North Korea has repeatedly defended its right to launch rockets for what it says are peaceful purposes and may have invested hundreds of millions of dollars in the failed launch.
China, the North's main backer, again appealed for "calm", although its failure to dissuade Pyongyang from undertaking the launch despite propping up the ailing and impoverished state, showed the limitations of its diplomacy, analysts said.
"Despite the failure of its attempted missile launch, North Korea's provocative action threatens regional security, violates international law and contravenes its own recent commitments," White House spokesman Jay Carney said in a statement.
Foreign ministers of the Group of Eight leading industrial nations condemned the launch as in breach of U.N. Security Council resolutions.
The North American Aerospace Defense Command, NORAD, said the first stage fell into the sea west of South Korea, and the remainder was deemed to have failed.
"No debris fell on land," NORAD said. "At no time were the missile or the resultant debris a threat.
CHINA HOLDS KEY DESPITE DIPLOMATIC FAILURE
The launch came just weeks after a "Leap Year" deal that saw Washington agree to provide food aid. Among the promises Pyongyang made in return was not to launch any long range rocket or undertake nuclear tests.
There is likely to be pressure from leading countries to impose more sanctions on the North. But it poses difficulties for China which will likely resist further sanctions even though its own diplomacy failed to stop the rocket launch.
"After giving so much aid to North Korea, it still did not listen to China, and this hurt China-North Korea relations and erodes domestic support in its continued support of North Korea," said Shen Dingli, a professor and regional security expert at Shanghai's Fudan University.
"This also undermines confidence in the US-China relationship, and whether China had done enough to persuade the North. So, China is also a loser, but not as big a loser as if North Korea succeeded in its launch," he said.
A tough push for sanctions, which Japanese Prime Minister Yoshihiko Noda pledged, could lead a show of defiance from the North such as a nuclear test, or an attack like the one in 2010 that saw it shell a South Korean island, killing civilians.
"Rather than any conventional provocation, I think North Korea will watch what U.S. and South Korea are doing and prepare for a nuclear test," said Chung Young-chul, a professor at Sogang University's Graduate School of Public Policy.
PRICE OF FAILURE FOR "SUPREME COMMANDER"
Now led by Kim Jong-un, North Korea had planned to make 2012 the year in which it became a "strong and prosperous nation" and the launch was part of a programme to burnish its credentials.
It even, unusually, invited foreign media in to cover the birthday celebrations and showed them the launch site.
Kim was named First Secretary of the Workers Party of Korea on Wednesday, as he accumulates titles and posts similar to those held by his father, Kim Jong-il who died in December.
State newspaper Rodong Sinmun on Friday dubbed him "the sun whom all the party members, service personnel and people of the DPRK (Democratic Peoples Republic of Korea) acclaimed out of their heartfelt desire".
Although North Korea is one of the most tightly controlled states on earth, with no free media and a tight grip on its population, such a high profile failure could trigger a backlash among the country's elite.
"This is the first crisis for the new leader that has just taken over," said Lee Jong-won, a professor at Waseda University in Tokyo.
"It is inevitable that they will look to find who is responsible for the failure, and I wonder what the treatment will be for those in the military and the hard-line officers who have pressed for the launch."
