The Korean peninsula has been split by the 4km wide no-go zone since 1953 with millions of troops massed either side. There is no movement of people in either direction.
But in a symbolic act POCOG president Lee said North Korean athletes would be free to arrive by road despite current heightened tension between the nations.
Only on Wednesday South Korea's new president Moon Jae-in said there was a "high possibility" of conflict with the North, which is pressing ahead with nuclear and missile programs.
Discussing progress towards next year's Games at the South Korea Embassy in London, however, Lee said the Olympics provided an opportunity to thaw relations.
"South Korea will welcome North Korea and when they decide to come the South Korean government will allow them to come by road and when they have supporting teams the Korean government will allow them to come by ship," he told Reuters.
"All nations are very welcome, including North Korea and Russia. We want it to be the peace Games."
Nearly all Russian track and field athletes were banned from the Rio Olympics last year after a doping scandal but Lee said he was confident Russia's anti-doping body would have its house in order in time for a 'clean' Pyeongchang Games.
"The participation of Russia is not my authority," he said. "It's the IOC and relevant organisations who will finally decide but as president of the Pyeongchang committee we would welcome all the countries and all the athletes.
"I know the Russians have been very active in meeting with the IOC and WADA regulations."
As well as the threat of war, the build-up to South Korea's first Games since the 1988 Seoul Olympics had been overshadowed by a government corruption scandal that forced President Park Geun-hye from office in March.
"Before when the public was asked what they thought about Pyeongchang 2018, 47 percent said 'scandal'," Lee said.
"But after the success of the test events and the support of the new president the Korean people are beginning to have confidence in the Games."
While Lee hopes the North Koreans and Russians will be there, he has not given up on the world's biggest ice hockey names arriving despite the National Hockey League (NHL) last month ruling it out.
The NHL had participated in every Winter Olympics since the 1998 Nagano Winter Games but is unhappy about having to shut down its regular season for three weeks.
"We are doing our best effort to participate," Lee said. "Based on my discussions with IIHF (International Ice Hockey Federation) chief Mr (Rene) Fasel he said nothing is concluded and we are still in discussions."
(Reporting by Martyn Herman; Editing by Toby Davis)
