The two Koreas have traded hundreds of rounds of live artillery fire across their disputed maritime border, forcing South Korean islanders to take shelter a day after the North drove up tensions by threatening a new nuclear test.
The exchange on Monday, triggered by a three-hour North Korean live-fire exercise that dropped shells into South Korean waters, was limited to untargeted shelling into the sea, military officials said.
South Korea's defence ministry said the North fired some 500 shells during the drill, around 100 of which landed on the south side of the sea boundary.
Ministry spokesman Kim Min-seok said the South had responded to Pyongyang's "premeditated provocation" by firing 300 shells from K-9 self-propelled Howitzer batteries based on its frontline islands.
"If the North takes issue with our legitimate returning of fire and uses it to make yet another provocation towards our sea and islands, we will make a resolute retaliation," Kim said.
Analysts said the incident, coming a day after Pyongyang threatened to conduct a "new form" of nuclear test, was largely a sign of the North's growing frustration with US resistance to resuming multi-party talks on its nuclear program.
"I don't see that this ran any real risk of escalating into a serious clash," said Yang Moo-jin, a professor at the University of North Korean Studies in Seoul.
"It's really North Korea showing it intends to keep the pressure on to resume a dialogue," Yang said.
Pyongyang sees the nuclear negotiations as an opportunity to win material concessions and aid from the international community.
The South Korean stock market shrugged off the incident, with the main Kospi index closing up 0.23 per cent at 1,985.61.
The North had ensured maximum publicity for its live-fire drill by taking the unusual step of notifying the South beforehand, and issuing a provocative no-sail, no-fly advisory.
The exercise began at 12.15pm (1415 AEDT) and South Korea, which had threatened to respond if any shells crossed the border, retaliated shortly afterwards.
"Our military fired back north of the border in line with ordinary protocol," the defence ministry said.
As a precaution, border island residents were evacuated to shelters, as South Korean fighter jets flew overhead.
In November 2010, North Korea shelled Yeonpyeong island, killing four people and triggering concerns of a full-scale conflict.
Pyongyang has carried out a series of rocket and short-range missile launches in recent weeks, in a pointed protest at ongoing annual South Korea-US military exercises.
Monday's incident coincided with nearly 15,000 South Korean and US troops launching a massive, 12-day amphibious landing drill.
Last week, the North upped the ante by test-firing two mid-range ballistic missiles capable of striking Japan.
As well as the annual South Korean-US military drills, the North has been angered by efforts to bring Pyongyang before the UN Security Council over a UN report detailing Pyongyang's record of systematic human rights abuse.
