Correspondents say the UN head's meeting with Sheikh Hasan Nasrallah is de facto recognition that the group is the main force in the area previously held by Israel, in the absence of a strong government presence.
Mr Annan has been in Lebanon trying to reach a consensus with the government over the pull-out, which would enable peacekeepers to be deployed along the border.
But Beirut has refused to deploy its army or allow peacekeepers to move into the area until the border dispute is resolved.
On Sunday, the UN Security Council endorsed a report by Mr Annan that Israel had withdrawn in compliance with a UN resolution but noted its concern over a number of border violations.
Mr Annan told the Hezbollah leader he would pursue the violations alleged by Lebanon with Israel.
He said he would also discuss Israel's detention without charge of a number of Lebanese citizens, some of whom are Hezbollah members.
"We have had a very good discussion about developments in the south, about the role of Unifil (peacekeepers), about the need for economic and social development of that area," Mr Annan said.
Hezbollah co-operation
Hezbollah, which is backed by Syria and Iran, is a Lebanese Shi'a Muslim organisation formed after Israel's 1982 invasion of Lebanon.
The group's attacks on Israeli troops in the former occupied zone were largely responsible for Israel's decision to end its occupation of Lebanon.
The UN head noted the importance of co-operation between UN peacekeepers and Hezbollah, which has sometimes been strained by the conflicting goals of maintaining peace and conducting a guerrilla war.
"We also discussed co-operation between Unifil, the government and non-state actors," Annan said before heading to the airport to leave for Jordan. "This co-operation has been good in the past and we intend to continue that way in the future."