South Korea Monday suspended trade with North Korea and banned its merchant ships from Seoul's waters, vowing to make the North "pay a price" for torpedoing a South Korean warship.
President Lee Myung-Bak, in a nationally televised address, vowed an immediate military response to any future aggression and said Seoul would refer the March 26 attack to the United Nations Security Council for punishment.
"From now on, (South) Korea will not tolerate any provocative act by the North and will maintain the principle of proactive deterrence," Lee said.
"If our territorial waters, airspace or territory are violated, we will immediately exercise our right of self-defence."
Analysts predicted cross-border tensions would remain high for months, but said major conflict was unlikely.
A multinational investigation team last Thursday reported evidence that a North Korean submarine fired a heavy torpedo which sank the 1,200-ton corvette near the disputed border, killing 46 sailors.
Seoul's close ally the United States and numerous other nations have condemned the attack, seen in Seoul as one of the worst provocations since the end of the 1950-53 war.
But China, which wields a Security Council veto, has so far only called on all sides to show restraint.
The North says the South has faked evidence of its involvement to try to ignite conflict. It threatens "all-out war" in response to any punitive moves.
Washington, which stations 28,500 troops in South Korea, has fully backed Seoul's response.
Defence Minister Kim Tae-Young said the navies of the two countries would soon stage an anti-submarine drill off the west coast as part of their response.
Kim also said the South would resume loudspeaker propaganda broadcasts across the tense land border, which the two sides had suspended under a 2004 agreement.
US Secretary of State Hillary Clinton is pressing China to get tough with the North during her current visit to Beijing. She visits Seoul Wednesday.
"Today we face another serious challenge provoked by the sinking of the South Korean ship," she said at the start of two days of high-level talks.
"So we must work together to address this challenge and advance our shared objective of peace and stability on the Korean peninsula," Clinton said, urging the North to halt "threats and belligerence" towards its neighbours.
In his speech from the war memorial in Seoul, Lee said trade and exchanges would be suspended since any cooperation was "meaningless" under present circumstances.
However, he exempted the jointly run Kaesong industrial estate just north of the border, and humanitarian aid for the North's children, from the cut-off.
"Once again, North Korea violently shattered our peace," Lee said in a strongly worded speech, urging its regime immediately to apologies for the attack and punishes those responsible.
The president said the South in the past had repeatedly tolerated the North's "brutality", citing a 1983 bombing in Myanmar aimed at Seoul's then-president and the downing of a South Korean airliner in 1987 which killed 115 people.
"But now things are different. North Korea will pay a price corresponding to its provocative acts."
The North, he said, "is a country that still believes in making threats and committing terrorist activities. North Korea's goal is to instigate division and conflict."
Dongguk University professor Kim Yong-Hyun said the North may restrict traffic to Kaesong or "try to show its firepower" along the west coast.
"Tension will remain high for months. But I believe the two sides may try to find a breakthough in the second half or after August, although it all depends on South Korea's attitude."
Yang Moo-Jin, of Seoul's University of North Korean Studies, said Lee had "declared an era of cold war. Tension will escalate further on the peninsula.
"A limited military conflict is always possible but the two Koreas are expected to show restraint as the superpowers around the peninsula will not let it go too far," Yang told AFP, adding Beijing would press Pyongyang to ease its stance.