Lithium slag (LS), a by-product of lithium extraction processes, poses a significant disposal challenge during the rapid development of new energy technologies. In this study, LS was used to replace partially washed sand in the process of mortar production to compensate for the content of stone powder in sand. Five mortar mixes containing varying proportions of LS were prepared, and the macroscopic performance was evaluated. A comprehensive microscopic analysis, including microstructure observations, hydration product identification, and pore structure analysis, was conducted. The impact of LS on the chloride ion permeability of mortar was also investigated in this study. The results indicate that an increase in LS content gradually reduces the workability of the mortar, with a 39.29% decrease in fluidity when 40% of the sand is replaced with LS. Moreover, the compressive and flexural strengths of the mortar initially increase and then decrease with higher LS content. Microscopic tests reveal that 20% LS substitution significantly optimizes the pore structure of the mortar, resulting in a lower chloride ion permeability coefficient. Consequently, 20% LS substitution is recommended as the optimal dosage for use as fine aggregate in mortar.