Seoul puts trade with North on ice over sinking

President Lee Myung-bak also pledged to drag Pyongyang back to the UN Security Council for possible new international sanctions and banned the North's cargo ships from passing through South Korean waters.

The White House said President Barack Obama fully supported the South's measures.

"US support for South Korea's defence is unequivocal, and the President has directed his military commanders to co-ordinate closely with their Republic of Korea counterparts to ensure readiness and to deter future aggression," the White House said.

Lee called it a "critical turning point" on the tense Korean peninsula, still technically in a state of war because the fighting ended with a truce, not a peace treaty.

"We have always tolerated North Korea's brutality, time and again. We did so because we have always had a genuine longing for peace on the Korean peninsula," Lee said in a solemn speech to the nation from the halls of the country's War Memorial.

"But now things are different. North Korea will pay a price corresponding to its provocative acts."

US Secretary of State Hillary Clinton warned of a "highly precarious" security situation in

the region, and said North Korea's neighbours, including Pyongyang ally China, understood the seriousness of the matter.

Mrs Clinton would not say whether such action would include new international sanctions against the North, and said she was engaged in intense consultations with China and other nations about the next step.

"We are working hard to avoid an escalation of belligerence and provocation," she said.

So far, China has refrained from criticising the North, which it supplied with troops during the Korean War.

The sinking of the Cheonan near the Koreas' western maritime border was South Korea's worst military disaster since the three-year Korean War. An international team of investigators said last week a torpedo fired from a North Korean submarine tore the ship in two.

Pyongyang disputes the maritime border unilaterally drawn by UN forces at the close of the war, and the Koreas have fought three skirmishes there, most recently in November.

Defence Minister Kim Tae-young said the US and South Korea would hold anti-submarine military exercises in the waters soon. The US has 28,500 troops in South Korea – a major irritant for the North.

South Korea's military, on guard to defend the nation from further North Korean aggression, will also resume playing anti-North Korean propaganda back over the border – a sensitive practice suspended in 2004 amid warming ties, officials said.

Lee called the sinking of

the Cheonan yet another example of "incessant" provocation by communist North Korea, accused over a 1983 attack on a presidential delegation that killed 21 people and the bombing of an airliner in 1987 that claimed 115 lives.

North Korea routinely denies involvement in the attacks, and has steadfastly denied responsibility for the Cheonan sinking.

Despite their rivalry, Seoul has been North Korea's No. 2 trading partner with $1.68 billion

in trade in 2009.