The government announced that Lee, 91, "passed away peacefully" several hours before dawn at Singapore General Hospital. An increasingly frail Lee was hospitalized in early February with severe pneumonia.
State television broke away from regular programming with a hagiographic tribute to Lee's life and achievements. In a live broadcast, one of its reporters called Lee's death the "awful and dreaded" news.
Lee commanded immense respect, and sometimes fear, from Singaporeans, who this year will celebrate the country's 50th anniversary of independence. He led multiracial Singapore with an iron grip for more than three decades until 1990, and is credited with transforming the resource poor island into a wealthy bustling financial hub with low crime and almost zero corruption.
His son, the current prime minister Lee Hsien Loong, struggled to hold back tears in a televised address to the nation.
Speaking in Malay, Mandarin and English, the prime minister said Lee built a nation and gave Singaporeans a proud national identity.
"We won't see another man like him. To many Singaporeans, and indeed others too, Lee Kuan Yew was Singapore," he said.
At the hospital where Lee spent the last weeks of his life, 55-year-old Maligah Thangaveloo cried as she clasped her hands in prayer before a sprawling array of flowers and cards left by Singaporeans. Calling Lee "father," she recalled shaking hands with him as a nine-year-old when he visited her school.
President Barack Obama called Lee a "visionary" in a statement, saying he was "deeply saddened" to learn of his death. Obama, who met Lee during a visit to Singapore in 2009, said his "remarkable" leadership helped build one of the most prosperous countries in the world.
He said Singapore's success meant that Lee's counsel was sought by political leaders around the world. Lee was also "hugely important in helping me reformulate our policy of rebalancing to the Asia Pacific," Obama said.
Neighboring Malaysia, with which Singapore has occasionally testy relations, said Lee's achievements were great and his legacy assured. "Malaysia is committed to the future of our relationship with Singapore," said Prime Minister Hajib Razak. In Beijing, Foreign Ministry spokesman Hong Lei described Lee as "an Asian politician with unique influence as well as a strategist imbued with eastern values and an international perspective."
The Singapore government has declared seven days of national mourning and flags will fly at half-staff on state buildings. A national holiday has not been declared and daily life in this pragmatically commercial city of vaulting glass towers and broad immaculate streets continues to bustle.
A private wake for the Lee family will take place on Monday and Tuesday at Sri Temasek, the prime minister's official residence in the lush tropical grounds of the Istana government complex. After that, Lee will lie in state at parliament until a state funeral on Sunday.
Sayeed Hussain, an IT executive, said Lee was a "great hero" to Singaporeans as he paid respects at Singapore General Hospital.
"It is our duty to respect him and recognize him as a great hero in the world," said Hussain. "This is our last chance to do so."
The government also set up condolence boards at Parliament House and Istana and a website called Remembering Lee Kuan Yew where people can leave messages.
Under Lee and his successors, Singapore was known around the world for its strict social order including a ban on chewing gum, restrictions on free speech and canings for crimes some countries would rule as minor. In recent years, it has become socially more liberal and the fragmented political opposition made gains in Singapore's last elections in 2011.
After stepping down as prime minister, Lee remained part of the Cabinet and an influential figure in Singapore and Asia.
His legacy is regarded within Singapore and abroad as profound but there is also recognition that a toll was also exacted.
Phil Robertson, deputy Asia director at Human Rights Watch, said Lee's "tremendous" role in Singapore's economic development is beyond doubt. "But it also came at a significant cost for human rights, and today's restricted freedom of expression, self-censorship and stunted multi-party democracy," he said.
Related story
Singaporeans mourn death of founding father Lee Kuan Yew
