'Change of heart'
His altered plea came after hearing video testimony from Elisabeth at the court in St Poelten, near Vienna.
Fritzl pointed to Elisabeth's statement when Andrea Humer, the court judge, asked what had led him to reverse his plea.
He would face life in prison for failing to get medical help for his son, who died shortly after being born in the cellar in 1996.
Fritzl expressed regret for not taking action over the ailing child.
"I don't know why I didn't help,'' he said. "I just overlooked it. I thought the little one would survive."
Rudolf Mayer, Fritzl's lawyer, said he was "completely surprised" by his client's change in plea.
"I was very, very surprised, because [Fritzl], his personality, is he always want to be powerful. I was very surprised that it was possible for him, now, to speak in front of the whole public, about how guilty he is," he said.
The lawyer said Elisabeth's testimony had a strong effect on Fritzl.
"I believe that he has been really shaken. He saw his daughter on the video for the first time and I think that this could have brought about the change," he said.
|Rudolf Mayer, Fritzl's lawyer, said he was very surprised at his client's change in plea [EPA]
On Tuesday, Franz Cutka, a court spokesman, said the defendant had watched his daughter's testimony "attentively".
"The defendant was questioned about the issues that came up ... and he gave his views," Cutka said.
His lawyer said the defendant expects to spend the rest of his life behind bars.
Fritzl built a soundproofed cellar with a reinforced door under his home in Amstetten.
"He shut [Elisabeth] away in the cellar and made her totally dependent on him, forcing her into sexual acts and treating her as if she was his own property," his charge sheet said.
Fritzl's daughter and her six children, three of whom were shut away from birth, are now living in a secret location under new identities.
The case came to light when one of the three children who had never seen sunlight, 19-year-old Kerstin, fell seriously ill and was taken to hospital by Fritzl.
In comments via his lawyer last year, Fritzl said he had lived a "second life" in the cellar complex, watching adventure videos with the children and bringing flowers for Elisabeth, who cooked dinner.
Three of the children born in the cellar were raised above ground by Fritzl and his wife after he pretended Elisabeth had abandoned them.
Police say that Fritzl's wife did not know of his actions.