South Korea says it has returned fire after North Korea fired around 200 artillery shells at one of its border islands, reportedly killing one marine.
The South's military was placed on its highest non-wartime alert after the shells landed on Yeonpyeong island.
North Korea has not yet commented on the incident, in which three marines and two civilians were also injured.
Analysts say this is one of the most serious clashes since the Korean War ended without a peace treaty in 1953.
There have been occasional cross-border clashes since, but the latest incident comes at a time of rising regional tension.
North Korea's reclusive leader Kim Jong-il is believed to be ill and trying to engineer the succession of his youngest son. And on Saturday, North Korea showed off what it claimed was a new uranium enrichment facility - potentially giving it a second route to a nuclear weapon.
The move prompted the US special representative for North Korea, Stephen Bosworth, to rule out the resumption of six-party talks on resolving the nuclear issue.
South Korean presidential spokesman Kim Hee-jung also said it was investigating a possible link between the artillery attack and a major military exercise near the western sea border which began on Monday.
It also comes just over a month after North Korean leader Kim Jong-il's youngest son, Kim Jong-un, was appointed to senior political and military posts, fuelling speculation that he was being prepared to succeed him.
BBC News
