"Bilateral trade is expected to exceed US$100 billion in 2020, making Vietnam the No. 2 destination for South Korean exports after China," said the report from the Korea International Trade Association (KITA).

Vietnam surpassed Hong Kong and emerged as South Korea's third-biggest export market in 2017, trailing China and the U.S., up three notches from 2014.

South Korean exports to the Southeast Asian economy have been on the rise over the past decade. South Korean products accounted for 8.5 percent of Vietnam's import market in 2007, but the ratio hit an all-time high of 22.1 percent last year.

The report attributed the spike in bilateral trade to the free trade agreement (FTA) between the two countries, which came into effect in December 2015.

South Korean exports to Vietnam have shot up 60.5 percent over the two years since the FTA implementation with imports jumping more than 61 percent.

Although South Korea's overall exports contracted for two consecutive years in 2015 and 2016, its shipments to Vietnam rose 24.2 percent and 17.5 percent, respectively.

Intermediate and capital goods took the lion's share of South Korean exports to Vietnam, with consumer goods taking up a mere 4 percent of the total.

South Korea posted a trade surplus of $31.6 billion against Vietnam in 2017, raising the possibility that Hanoi may complain about the trade imbalance, the report said.

"To break from the current system of exports driven by intermediate and capital goods, South Korea needs to increase the portion of consumer goods," said Chung Kwi-il, a KITA researcher. "South Korea should also craft a framework for economic cooperation, which may give the impression that South Korean firms' entry into Vietnam can contribute to the country's economic development."