Li, who chairs auto giant Geely Automobile Holdings, bought a 9.69-percent stake in the carmaker, worth around 7.2 billion euros, according to the filing.
The size of the investment leapfrogs a 6.8-percent stake in the Stuttgart-based group held by Kuwait and Renault-Nissan's 3.1-percent holding.
“Daimler is pleased to announced that with Li Shufu it could win another long-term orientated shareholder,” a spokesman for the Stuttgart-based group told AFP.
Li had been “convinced by Daimler's innovation strength, strategy and future potential,” he added.
German business media have for weeks reported Li and Geely's interest in Daimler.
But Friday is the first time Li's stake has crossed the threshold of 3 percent of stock, requiring a public notification.
Geely itself is no stranger to the European car business, having bought Sweden's Volvo in 2010.
It also owns British sports car manufacturer Lotus and the firm which makes London's world-famous black cabs.
And in December it advanced further onto Daimler's turf, investing in AB Volvo, the world's number two truck manufacturer after the Stuttgarters.
But in a speech to the CAR Institute automotive conference in Bochum, Germany earlier this month, Li skirted around the speculation, saying simply that Europe had “a very important role for the development of automotive brands under our leadership”.
54-year-old Li is 10th on Forbes magazine's China Rich List and 209th on its global billionaires ranking, with an estimated net worth of $16.6 billion.
His interest in Germany is the latest in a string of acquisitions by wealthy Chinese firms and individuals, including conglomerate HNA which owns an 8.8-percent stake in the country's biggest lender Deutsche Bank.
China's avid search for footholds in Europe has raised hackles among some politicians in Berlin, Paris and Brussels.
Daimler overtook homegrown rival BMW to become the world's largest luxury car maker by unit sales in 2016, helped by a broad refresh of its model range and powerful sales growth in China.
It reported a 24-percent leap in net profits last year, to 10.9 billion euros, when it presented its annual earnings earlier this month.
Geely's investment arrives as Daimler begins moving away from a classic German conglomerate model that shareholders complain is too rigid.
It will become a holding company combining three divisions: financial services, cars and small commercial vehicles and trucks and buses.
The Stuttgart firm is unusual among its German peers in lacking a single controlling shareholder, whereas Volkswagen is dominated by the Porsche-Piech clan and BMW by the Quandt-Klatten family.
Executives hope the reform will make Daimler more flexible as it adapts to a changing environment for the industry, electrifying a growing share of its range and offering new digital services like ride- or car-sharing.
Electric vehicles are especially critical to the massive Chinese market, where Beijing is preparing to impose quotas for emissions-free vehicles on manufacturers.
Daimler is making Mercedes-Benz cars for the Chinese market locally via a joint venture with partner BAIC motors.
The company told business daily Handelsblatt Friday that its relationship with BAIC remained solid.