Police and firemen were among around 420 personnel participating in the exercise, held in front of the Olympic Stadium at Pyeongchang, just 80 km (50 miles) from the heavily fortified border with North Korea.
During the simulated drills, members of a SWAT team shot down a drone with a bomb attached that was flying toward a bus carrying athletes.
In another part of the mock exercise a terrorist took hostage athletes on a bus, and tried to ram the vehicle into the stadium before being gunned down by police. Officers in gas masks also removed a chemical bomb.
Anxiety on the Korean Peninsula has been rising in recent months due to a series of missile tests by North Korea as it continues its pursuit of nuclear weapons in defiance of U.N. sanctions and warnings from the United States.
"Please keep in mind that accidents always happen where no one has expected," South Korean Prime Minister Lee Nak-yon said.
"Please check until the last minute whether there are any security loopholes."
Lee did not mention North Korea, but South Korea's Defense Ministry on Friday flagged risks that North Korea could resort to terrorist or cyber attacks to spoil international events.
Some 5,000 armed forces personnel will be deployed at the Winter Games, according to South Korean government officials and documents reviewed by Reuters.
Pyeongchang’s organising committee for the 2018 Games (POCOG) has also hired a private cyber security company to guard against a hacking attack from the North, tender documents show.
To minimize the risk of provoking an aggressive North Korean reaction during the games, South Korea has asked Washington to delay regular joint military exercises until after the Olympics, the Financial Times reported. A spokesman for South Korea's defence ministry said on Tuesday that nothing has been decided.
(Reporting by Choi Jiwon and Hyunjoo Jin; Editing by Simon Cameron-Moore)
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