Vasily Gritsak, the head of the Ukrainian Security Service, said the agency was forced to fake Babchenko's death to foil an alleged Kremlin hit. "I want to say sorry for your suffering", the journalist said.
His wife found him bleeding on the ground and he died in the ambulance en route to the hospital, they said.
Babchenko had moved to Kiev in the fall after fleeing Russian Federation, where he was a prominent war correspondent who in recent years had become fiercely critical of the Kremlin.
Babchenko, for his part, apologized for being part of the deception, but said it was necessary. The news quickly spread around the world and appeared, for the moment at least, to worsen the already strained relationship between Moscow and Kiev.
Babchenko, a former soldier in the Chechen war who became one of Russia's best-known war correspondents, had left his homeland fearing for his life after criticising Russian policy on Ukraine and Syria.
Head of the SBU Vasyl Hrytsak said the agency received information about the preparation of an assassination attempt on Babchenko's life. Russian officials also criticized Ukraine for failing to provide adequate protection to journalists.
Ukraine and Russian Federation traded accusations after Babchenko was reported to have been shot dead in Kiev, in a killing that sent shivers through the journalistic communities in both countries.
Outside the apartment where Arkady Babchenko wasn't killed, people wept as though he was.
The journalist was 19 when he fought with the Russian army in Chechnya in the 1990s.
Babchenko told the news conference he had previously fled Russian Federation after receiving death threats.
In Kyiv, Ukrainian and Kyiv-based journalists mourned Babchenko and then began interviewing witnesses and gathering security video from businesses and residences in the area, in an effort to help solve his would-be murder. His flight from Russian Federation came several months after he wrote in a Facebook post that he wasn't sorry members of a military band and state television journalists died in a plane crash on their way to Russia's military base in Syria.
Russian Foreign Minister Sergey Lavrov responded by denouncing the accusations, calling the supposed killing a "tragedy".
Ukrainian officials led by Prime Minister Volodymyr Groysman accused Russian Federation of being behind the killing of the Kremlin critic, a charge that Moscow batted back.