Under questioning by prosecutors in court, Lee, 69, said he knew that crew member Cho Jun-Ki, who was steering the ship after working the Sewol for only six months, did not have the required skill and experience.
Lee, when asked if he should have taken the helm as the ship entered a channel notorious for its strong underwater currents, replied: "Yes, I guess so."
The Sewol, which was overloaded and top heavy following an illegal refit, made a sharp turn in the channel, causing it to list sharply to one side.
This caused the cargo to shift, and the ferry was unable to right itself, eventually turning full turtle and sinking.
The bespectacled Lee, dressed in a khaki prison uniform with the number 3114, appeared tense and stammered during his testimony, in the court in the southwestern city of Gwangju.
Lee and three senior crew members are accused of "homicide through wilful negligence" - a charge that can carry the death penalty.
Eleven other crew are being tried on lesser violations of maritime law.
The captain and crew were vilified for abandoning the ferry while hundreds were still trapped inside, and criticised for ordering passengers to remain where they were when the ship began listing.
Asked where he was when the ferry ran into trouble, Lee said he was in his cabin "smoking and changing clothes".
He denied the allegation that he had been playing games on his phone.
"No, I wasn't playing a game. I wouldn't know how to. I was just holding the smartphone," he said.
Lee has insisted that the ferry owners are the real culprits as it was their decision to habitually overload the vessel.
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