The BBC's John Sudworth explains how the cross-border clash developed.

South Korea says it will retaliate with missile strikes against the North if faced with "further provocations", after an exchange of fire in which two South Korean marines were killed.

President Lee Myung-bak was responding to the shelling of an inhabited island close to a disputed maritime border.

The South returned fire in one of the worst clashes since the Korean War.

US President Barack Obama called the incident an "outrageous, provocative act" by Pyongyang.

He was speaking ahead of an expected telephone call to President Lee.

The South Korean military had been carrying out an exercise near Yeonpyeong island, and the North accused the South of opening the hostilities - something Seoul denies.

The South says North Korean shells started falling in the waters off the island at 1434 local time (0534 GMT) on Tuesday.

Yeonpyeong island

    * Lies 3km (2 miles) from disputed Yellow Sea border and 12km from North Korean coast
    * Houses military installations, a permanent Marine detachment and a small civilian population
    * Rich fishing grounds in surrounding waters
    * Scene of inter-Korean naval clashes in 1999 and 2002
    * In the 2002 exchange of fire, 13 Northern sailors and five Southern sailors were killed
    * In pictures: Korean shelling
    * Possible triggers for attack

At least 50 landed directly on the island, most of them hitting a South Korean military base there. In addition to the two deaths, 16 South Korean marines and three civilians were injured.

The South fired back some 80 shells. Casualties on the northern side are unknown.

President Lee held a meeting with the Joint Chiefs of Staff in Seoul.

Afterwards he said he had ordered the military to punish North Korea for its artillery attacks "through action", not just words, saying it is important to stop the communist regime from contemplating additional provocation.

"The provocation this time can be regarded as an invasion of South Korean territory. In particular, indiscriminate attacks on civilians are a grave matter," he said.
'Belligerent'

There have been occasional cross-border incidents since the conflict ended without a peace treaty in 1953, but the latest comes at a time of rising regional tension.
Map showing Yeonpyeong and the disputed border between North and South Korea

North Korea's reclusive leader Kim Jong-il is thought to be ill and trying to ensure the succession of his youngest son.

On Saturday, it emerged that North Korea had also shown off what it claimed was a new uranium enrichment facility to an American scientist.

Analysis
Jonathan Marcus BBC diplomatic correspondent

Nobody needed any reminder of the volatility of the relations between North and South Korea, nor of the sensitivity of their disputed maritime border. In March, a South Korean warship was sunk by an explosion and an investigation indicated strongly that the North was responsible.

The shelling of Yeonpyeong fits into the same pattern. From the North Korean viewpoint, this is about establishing deterrence over the South and defending its interests. But it is also a wider demonstration to the world of the North's power and an indication of some kind of political transition.

The move prompted the US to rule out the resumption of six-party talks on nuclear disarmament that Pyongyang abandoned two years ago.

White House press secretary Robert Gibbs called on North Korea to "halt its belligerent action", adding that the US was "firmly committed" to South Korea's defence.

But North Korea's supreme military command blamed South Korea for the incident.

"The South Korean enemy, despite our repeated warnings, committed reckless military provocations of firing artillery shells into our maritime territory near Yeonpyeong island beginning 1300 (0400 GMT)," the state-run KCNA news agency quoted it as saying.

The North will strike back if South Korea "dares to invade our sea territory by 0.001mm", it warned.

There was more condemnation of North Korea from Russia, EU and the UK, although China - the North's main ally - refused to apportion blame.

North Korea: Timeline 2010

26 March: South Korean warship, Cheonan, sinks, killing 46 sailors

20 May: Panel says a North Korean torpedo sank the ship; Pyongyang denies involvement

July-September: South Korea and US hold military exercises; US places more sanctions on Pyongyang

29 September: North holds rare party congress seen as part of father-to-son succession move

29 October: Troops from North and South Korea exchange fire across the land border

12 November: North Korea shows US scientist new - undeclared - uranium enrichment facility

A spokesman for the Chinese foreign ministry said that both countries should "do more to contribute to peace".

"What's imperative now is to restart six-party talks as soon as possible," Hong Lei told reporters in Beijing.

Japan's Prime Minister, Naoto Kan, said he had ordered ministers to prepare for any eventuality.

"I ordered them to make preparations so that we can react firmly, should any unexpected event occur," he said.

Russia's foreign minister warned of a "colossal danger", and said those behind the attack carried a huge responsibility.

This western maritime border, also known as the Northern Limit Line, has been the scene of numerous clashes in the past.

In March, a South Korean warship went down near the border with the loss of 46 lives. International investigators say a North Korean torpedo sank the ship, although Pyongyang has denied any role in the incident.