Despite the fact that the H&K MP5SD6 was already in service with the Republic of Korea Armed Forces by the time the K7 reached production status, most of the special forces relied on unconventional weapons during covert operations due to high price of imported and domestically produced SMGs, more specifically, silenced SMGs. Due to the substantial cost of the importation and production of such weapons, the Republic of Korea Army Special Warfare Command requested the development of a silenced submachine gun that would be less expensive to import or manufacture than the MP5SD6. The Defense Agency for Technology and Quality, a part of the Agency for Defense Development, and Daewoo Telecom, a subbranch of Daewoo Group, officially started development in April 1998, finishing the project in December 2000.
Due to the fact that the K7 was developed from the Daewoo K1A, the K7 features parts that can be interchanged with those of the K1 and vice versa.
As the K7 uses subsonic ammunition (9×19mm), there is little need for the weapon to use the direct gas impingement system of the K1A. Instead, the K7 utilizes a simple blow-back system. A 30-round vertical box magazine is used and it can also use the 30-round magazines taken from the IMI Uzi or 32-round magazines from the Beretta Model 12. As the magazine well of the K1A was retained, there are internal accommodations for the smaller 9 mm magazine. There are 3 firing modes, single shot, a 3-round burst and fully automatic. However, prolonged fully automatic fire has been shown to damage and degrade the baffles within the integral suppressor. As a result of the light bolt, a cyclic rate of fire of 1150-rounds per minute is achieved.
The K7's upper receiver is based on that of the K2, albeit slightly modified. The hammer/fire control unit and telescopic stock are also derived from those of the K1.