Clinton made an unannounced visit to North Korea on Tuesday and met with Kim to discuss the status of the two journalists, Laura Ling and Euna Lee. ABC News, a US broadcaster, reported that Clinton also held an emotional meeting with the two prisoners.
Ling and Lee were arrested in March for allegedly crossing illegally into North Korea and were subsequently convicted and sentenced to 12-year prison terms. The US has continuously called on Pyongyang to release the journalists on humanitarian grounds.
Yonhap, quoting the North Korea's official Korean Central News Agency, reported that Kim had agreed to pardon the journalists.
"Kim Jong Il issued an order of the Chairman of the National Defence Commission on granting a special pardon to the two American journalists who had been sentenced to hard labour ... releasing them," the report said.
During the visit, Clinton posed for pictures with Kim, whose health has been in question since he reportedly suffered from a stroke last year, and the reclusive North Korea leader hosted a dinner for him in the evening.
Clinton's private plane was reportedly still in North Korea, and FOX News cited a US government source as saying the journalists would likely return with the former president.
The White House had confirmed Clinton's trip to win the release of the hostages, but would provide no details, not wanting to say anything that could jeopardize the effort.
"This is obviously a very sensitive topic," White House spokesman Robert Gibbs told reporters earlier in Washington. "We will hope to provide some more detail at a later point. Our focus right now is ensuring the safety of the two journalists that are in North Korea right now."
Clinton was greeted by high-ranking North Korean officials upon his arrival, including Kim Kye Gwan, North Korea's top nuclear negotiator, state-run Central Television said. Some analysts speculated that Clinton's trip could be a catalyst for thawing relations and resuming negotiations on Pyongyang's contentious nuclear programme.
North Korean media reported that Clinton and Kim Jong Il engaged in "serious conversation." The White House flatly denied a North Korean media report that Clinton had delivered a personal message from President Barack Obama to Kim.
There was hope that Clinton's visit could pave the way for the US and North Korea to begin making progress on stalled negotiations over Pyongyang's nuclear activities.
The talks have been at an impasse since last year, and North Korea announced in January it would no longer participate in the six-nation talks aimed at resolving the nuclear dispute. The other countries are China, Japan, Russia and South Korea.
North Korea recently signalled its interest in one-on-one discussions with the US. Washington said it would be willing for direct communication in the context of the six-nation format, but not until Pyongyang takes steps to live up to its obligations in a 2005 disarmament agreement.