The company released an independent report showing that East German prisoners, among them many political dissidents, were involved in the manufacture of goods supplied to IKEA between 25 and 30 years ago.
The report concluded that IKEA managers were aware of the possibility that prisoners would be used in the manufacture of its products and took some measures to prevent this, but they were insufficient.
"We deeply regret that this could happen," Jeanette Skjelmose, an IKEA manager, said in a statement. "The use of political prisoners for manufacturing was at no point accepted by IKEA."
But she added that "at the time we didn't have the well-developed control system that we have today and we clearly did too little to prevent such production methods."
IKEA asked auditors Ernst & Young in June to look into allegations aired earlier this year by a Swedish television documentary, but first raised by a human rights group in 1982.
Rainer Wagner, chairman of the victims' group UOKG, said IKEA was just one of many companies that benefited from the use of forced prison labor in East Germany from the 1960s to 1980s.
"IKEA is only the tip of the iceberg," he told The Associated Press in an interview earlier this week.
Wagner said he hoped that IKEA and others would consider compensating former prisoners, many of whom carry psychological and physical scars from arduous labor they were forced to do.
"IKEA has taken the lead on this, for which we are very grateful," he told a news conference in Berlin.