By Elizabeth Koh

Samsung's de facto leader, Lee Jae-yong, avoided a second stint in jail when a Seoul district court judge rejected South Korean prosecutors' request to arrest the business tycoon for committing financial fraud in a 2015 intra-conglomerate merger.

Wearing a face mask and a purple tie, Mr. Lee, the grandson of Samsung's founder, walked into a Seoul district court for a Monday morning hearing that lasted several hours. Prosecutors had sought arrest warrants late last week for Mr. Lee and two former Samsung executives. The court issued its ruling early Tuesday local time.

Mr. Lee, 51, isn't yet in the clear. Prosecutors, who have investigated more than 100 Samsung officials, can still return with additional evidence and seek another arrest warrant. Three top executives, including a vice president, have already been given jail sentences for hiding or destroying evidence in the probe.

Mr. Lee's legal saga -- now entailing two different, though related, cases -- flows from a controversial merger between two Samsung affiliates five years ago. The latest arrest-warrant decision centers on alleged accounting fraud tied to the deal. He also faces a retrial for his prior conviction of bribing South Korea's former president and her friend, in return for government help approving the deal.

Both of those cases are expected to drag into next year, according to South Korean legal experts. It extends a time of intense legal scrutiny of Mr. Lee and his conglomerate at a time of business distress as Samsung navigates the Covid-19 pandemic global economy.

Samsung has denied both the scope of the bribery charges and any wrongdoing with the merger or Samsung Biologics' accounting. In a statement, it also rejected any claims that Mr. Lee had directed or ordered any illegal activity.

Write to Elizabeth Koh at Elizabeth.Koh@wsj.com