"The Sheba Medical Center at Tel Hashomer announces with sorrow the death of Mr Ariel Sharon who passed about an hour ago," hospital spokesman Shlomo Noy said.
"Today his heart weakened and he peacefully departed from his family who were always at his side with love and support."
Sharon was elected prime minister in 2001 and served until he suffered a massive stroke that left him comatose on January 4, 2006. His condition deteriorated on New Year's day, when he suffered serious kidney problems after surgery.
"He's gone; he went when he decided to go," his son Gilad told reporters at the hospital.
Sharon's vital organs failed, including his kidneys and his lungs. His blood pressure and heartbeat, which returned to normal on Monday, deteriorated on Thursday, authorities said.
They said Sharon "fought like a lion" and that "others in his condition would not have lasted as long as he did".
Sharon's family gathered at the hospital to be with him in his final moments. His sons Omri and and Gilad had been by his side since his condition deteriorated.
He was revered by many in his country as "Mr Security" for his contributions in all the major wars since Israel's independence. Sharon was reviled in equal measure in the Arab world as the "butcher of Sabra and Shatila".
While serving as defence minister in 1982, he masterminded Israel's invasion of Lebanon. During the invasion, Lebanese Christian militiamen allied to Israel massacred hundreds of Palestinians in two Beirut refugee camps - Sabra and Shatila - under Israeli control.
A state funeral will be organised for Sharon by the Prime Minister's office. Current and former world leaders are expected to come to Israel for the funeral, officials said.
Tributes poured in for Sharon as news of his death spread. In a tribute, Prime Minister Benjamin Netanyahu said "his memory will live forever in the nation's heart".