DPRK did ship attack

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The armistice prevents Seoul from waging a unilateral military attack, and South Korea would not risk any retaliation that could lead to war, said North Korea expert Yoo Ho-yeol at Korea University in Seoul.

"That could lead to a completely uncontrollable situation," he said, noting that Seoul and its 10 million residents are within striking range of North Korea's forward-deployed artillery.

South Korea and the U.S., which has 28,500 troops on the peninsula, could hold another round of joint military exercises in a show of force, said Daniel Pinkston, a Seoul-based analyst for the International Crisis Group think tank.

He also said the military will likely improve its early warning surveillance abilities and anti-submarine warfare capabilities to prevent such surprise attacks in the future.

Analysts said Seoul could move to punish North Korea financially, and Foreign Minister Yu Myung-hwan also has said Seoul would consider taking it to the U.N. Security Council.

North Korea is accused of waging a slew of attacks on South Korea over the years, including the 1987 downing of a South Korean airliner that killed all 115 people on board. It has never owned up to the attacks, and Seoul has never retaliated militarily.

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North Korea said on Tuesday it was cutting all ties with the South and threatened its wealthy neighbor with military action over alleged violations of its waters off the west coast.

The comments marked a new high in tensions on the divided peninsula after the March sinking of a South Korean warship, which Seoul blames on a torpedo fired by the communist North.

The increasingly war-like rhetoric hit Seoul's financial markets, prompting policymakers to call an emergency meeting on Wednesday to look for ways to calm investors.

"The Committee for the Peaceful Reunification of Korea .... formally declares that from now on it will put into force the resolute measures to totally freeze the inter-Korean relations, totally abrogate the agreement on non-aggression between the north and the south and completely halt the inter-Korean cooperation," the North's KCNA news agency reported.

North Korea will also expel personnel from the Kaesong industrial park, a joint North-South venture just inside its border. It was not immediately clear what impact that would have on factories there.

The industrial estate, in which South Korean firms employ cheap North Korean labor, is an important source of revenue for the Pyongyang leadership.

North Korea earlier said if the South continued to cross into its side of the disputed sea border -- the scene of deadly clashes in the past -- the North would "put into force practical military measures to defend its waters."

The North referred to the South's government as "military gangsters, seized by fever for a war".