By Agence France-Presse
Parts of the 10-country region, encompassing about 650 million people, have long struggled with Islamic militancy and the emergence of IS has served as a new rallying point for radicals and re-energised extremist groups.
A deadly gun and suicide-bombing attack in Indonesian capital Jakarta in 2016 was the first IS-claimed assault in the region, while the Philippine city of Marawi was overrun last year by fighters loyal to the jihadists, triggering a months-long battle that killed hundreds.
Fears are also growing that Southeast Asia, which is home to booming economies where a growing number of people are adopting digital technology in their everyday lives, could be increasingly targeted by cyberattackers.
Opening the summit of the Association of Southeast Asian Nations (ASEAN) in Singapore, Lee warned that IS continues to threaten the region despite their military defeat in Iraq and Syria, while the move towards digitalisation has made countries more vulnerable to cyberattacks.
"Southeast Asia is at peace, but these threats are very real," he said.
"We need to be resilient to both conventional threats, and also non-conventional threats such as terrorism and cyberattacks."
The leaders at a working dinner Friday ahead of their formal summit agreed to increase coordination in cybersecurity.
Lee also warned that the open global trading system, which has allowed many of the region's export-driven economies to flourish, has come under increasing threat due to protectionist policies in major economies.
"The political mood in many countries has shifted against free trade," he warned.
"In particular, the trade tensions between the US and China are worrying concerns."
Washington and Beijing have imposed tit-for-tat tariffs on billions of dollars worth of goods which analysts said could escalate into a global trade war and scupper global growth.
Lee said the answer to such rising protectionism is for ASEAN to further push for the deeper integration of their economies and bolster cooperation in other fields.
"Individually, the ASEAN member states will find it hard to make much impact on their own," Lee said.
"But when we speak in one collective ASEAN voice, we can be effective."
ASEAN groups Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam.