Tung Chee-hwa: Beijing's choice
The announcement had been widely expected following signals from China that it was backing him again.
Mr Tung is not expected to face a challenge when the decision on the next chief executive is made next year by a specially formed election committee of 800 mostly pro-Beijing figures.
But an opinion poll suggests fewer than one in six people in Hong Kong want Mr Tung to stand again.
"I'm honoured to announce to you and to the people of Hong Kong that I have decided to run for a second term," Mr Tung told a function on Thursday.
Jiang's backing
Critics view him as a puppet of Beijing who has failed to defend Western-style liberties since the handover, and who has done little to combat two economic downturns.
He does have the backing of prominent Hong Kong tycoons.
Mr Tung, himself a former shipping tycoon, was hand-picked by Beijing to lead the former colony when it returned to Chinese rule in 1997.
Chinese President Jiang Zemin was reported on Thursday to have publicly backed Mr Tung.
Responding to a question from Hong Kong reporters during a visit to Burma, the president said he hoped Mr Tung would be re-elected, local radio reported.
But outside the convention centre where Mr Tung announced his intention to stand, a dozen members of a protest group opposed to his re-election held a candle-lit vigil.
'Insult'
The group, known as the Coalition Against a Second Term, has accused Mr Tung of chipping away crucial parts of the autonomy the territory was promised when Britain returned it to China.
Democratic Party leader Martin Lee told AFP that Mr Tung could probably secure 600 votes from the 800 committee members.
"However, it is an insult to the intelligence of the people of Hong Kong that they cannot elect their own leader. It is a raid on democracy," he said.
Coalition spokeswoman Emily Lau has protested that the system is rigged to ensure that only Beijing's nominee can win.
In an article in the South China Morning Post last month, she said the election process undermined the legitimacy of the executive authorities and the legislature.
Mr Tung came under fire in July when the legislature passed a new bill that gives Beijing the power to sack the territory's leader. Human rights groups also fear the government might follow China's example by banning the Falun Gong spiritual movement.