Kim Yo-Jong, who is a senior member of the ruling Workers' Party, will be part of a high-level delegation due Friday and led by the North's ceremonial head of state, the unification ministry said.
The two Koreas have been divided by the Demilitarized Zone since the end of the Korean War in 1953, and Pyongyang's pursuit of nuclear weapons have seen it subjected to multiple rounds of United Nations Security Council sanctions.
But the Olympics have triggered a rapid rapprochement on the peninsula.
"It is highly significant that a member of the Kim family is coming to the South for the first time in history," said professor Yang Moo-Jin of the University of North Korean Studies in Seoul.
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She was likely to meet South Korean President Moon Jae-In and give him a personal letter from her brother, expressing his hopes for a successful hosting of the Olympics and a desire to improve inter-Korean ties, he added.
Kim Yo-Jong, believed aged about 30, was promoted in October to be an alternate member of the party's powerful politburo, the decision-making body presided over by her brother.
She has frequently been seen accompanying her brother on his "field guidance trips" and is known to have been involved in the party's propaganda operations.
US Vice President Mike Pence will also attend Friday's opening ceremony in Pyeongchang and has not ruled out meeting North Koreans.
Pence's presence may have been a factor in Kim's decision to send his sister, professor Koh Yu-Hwan at Dongguk University told AFP.
"Her trip will create a media frenzy, stealing the show from Vice President Pence who wants to highlight the North's human rights abuses and sanctions-defying nuclear drive," he said.
Kim Jong-Un is the third generation of the dynasty to lead the country, after his father Kim Jong-Il and grandfather Kim Il-Sung, the North's founder.
Kim Jong-Il fathered both Kim Jong-Un and Kim Yo-Jong with his third partner, former dancer Ko Yong-Hui.
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