South Korea says it will retaliate with missile strikes against the North if faced with “further provocations”, after an exchange of fire in which two South Korean marines were killed.
President Lee Myung-bak was responding to the shelling of an inhabited island close to a disputed maritime border.
The South returned fire in one of the worst clashes since the Korean War.
US President Barack Obama called the incident an “outrageous, provocative act” by Pyongyang.
He was speaking ahead of an expected telephone call to President Lee.
The South Korean military had been carrying out an exercise near Yeonpyeong island, and the North accused the South of opening the hostilities – something Seoul denies.
The South says North Korean shells started falling in the waters off the island at 1434 local time (0534 GMT) on Tuesday.
At least 50 landed directly on the island, most of them hitting a South Korean military base there. In addition to the two deaths, 16 South Korean marines and three civilians were injured.
The South fired back some 80 shells. Casualties on the northern side are unknown.
President Lee held a meeting with the Joint Chiefs of Staff in Seoul.
Afterwards he said he had ordered the military to punish North Korea for its artillery attacks “through action”, not just words, saying it is important to stop the communist regime from contemplating additional provocation.
“The provocation this time can be regarded as an invasion of South Korean territory. In particular, indiscriminate attacks on civilians are a grave matter,” he said.