North Korea has said it is ready for a 'sacred war' using its nuclear weapons as the South held a live-fire drill.

The south's show of strength came a month after the North’s artillery attack on a border island.

Armed forces minister Kim Young-Chun also repeated Pyongyang's charges that the South's exercises near the border were in preparation for a new Korean war.

'The revolutionary armed forces of the DPRK (North Korea) are getting fully prepared to launch a sacred war of justice of Korean style based on the nuclear deterrent at anytime necessary to cope with the enemies' actions deliberately pushing the situation to the brink of a war,' Mr Kim said.

The threat came after South Korean President Lee Myung-Bak, visiting a frontline army unit elsewhere, warned of severe retaliation in the event of a new attack by the North.

The South's military was heavily criticised for a perceived feeble response to last month's bombardment, which two marines and two civilians.

It has been stressing its battle-readiness and determination to hit back harder next time, using air power.

'We should make a stronger and bigger counter-strike so they cannot provoke us again,' President Lee was quoted by Yonhap news agency as saying.

'We've endured for long enough. We thought we could maintain peace on this land if we endured, but that was not the case,' he said.

'Now we need to strongly retaliate to maintain peace, deter provocations and prevent war.'

People in the North, the president said, 'are almost starving to death, and with the money spent to make atomic bombs, people could live'.

The exercise at the Pocheon range, 30km south of the tense land border with North Korea, lasted about 40 minutes.

Some 800 troops took part along with 30 tanks, 11 armoured personnel carriers, six jets, 36 artillery pieces, three multiple long-range rockets, seven helicopters and other equipment.

The navy is also conducting a four-day exercise off the east coast, which began yesterday.

Pyongyang's official news agency said the South was committing 'grave military provocation' by staging the drills.