South Korea would target North Korean launch sites if its ships came under missile attack in the Yellow Sea, Seoul's defence minister warned on Friday.
"We will take preventive measures if a missile attack were launched by the enemy, and the locations where a missile originates must be attacked because of its obvious act of aggression," Lee Sang-Hee told parliament.
Tensions have risen since the communist North cancelled all peace accords with the South, including one recognising the Yellow Sea border as an interim frontier.
The area saw deadly naval clashes in 1999 and 2002.
The North's military announced on Thursday it is "fully ready" for war with South Korea. Official Radio Pyongyang said "a dangerous situation" is arising in the Yellow Sea, adding that "one does not know when military clashes will occur."
Lee made his remarks after a ruling party lawmaker asked how the military would respond if North Korea attacked one of its vessels in the area.
The North refuses to recognise the border drawn after the 1950-53 Korean war and known as the Northern Limit Line, saying it should run further south.
"We expect various scenarios of North Korean provocation, including at the NLL," Kim Tae-Young, chairman of South Korea's Joint Chiefs of Staff, told a parliamentary hearing on Thursday.
Visiting US Secretary of State Hillary Clinton on Friday told the North to stop provocative acts.
Pyongyang is angry with President Lee Myung-Bak, who has rolled back his predecessors' policy of largely unconditional aid and engagement with North Korea and linked major economic aid to its progress on denuclearisation.