South Korea on Monday staged a major live-fire exercise near the disputed inter-Korean sea border despite North Korea’s warning of possible "merciless" retaliation, military officials said.

South Korea on Monday staged a major live-fire exercise near the disputed inter-Korean sea border despite North Korea's warning of possible "merciless" retaliation, military officials said.

The drill was carried out around front-line islands in the Yellow Sea to mark the anniversary of North Korea's deadly shelling of one of them five years ago, the South's defense ministry said.

The attack on Yeonpyeong Island on November 23, 2010 killed four South Koreans including two civilians and sparked brief fears of full-scale war. It was one of the most serious border incidents since the 1950-1953 Korean War.

South Korea has in the past staged live-fire exercises near the Yellow Sea border around the time of the anniversary as a show of strength.

On Sunday North Korea's military threatened to retaliate "mercilessly" if South Korean artillery shells fall into North Korean waters.

Seoul declined to disclose details of its drill but vowed to hit back immediately if North Korea launches any provocations.

"I want our military to build up a perfect combat-readiness posture so they can deal with any kind of threat or provocation without hesitation," President Park Geun-Hye said in a video message at a ceremony marking the anniversary.

The ceremony at a war memorial in Seoul was attended by thousands of government officials, soldiers and others.

The two Koreas will on Thursday hold rare talks aimed at setting up a high-level dialogue that might provide the foundation for a sustainable improvement in relations.

The talks at the border truce village of Panmunjom will be the first inter-governmental interaction since officials met there in August to defuse a crisis that had pushed both sides to the brink of armed conflict.