North Korea's navy has accused South Korea of sending warships across their maritime border to stir tensions.
The North warned that further incursions across the disputed border could spark retaliations.
The communist state's navy said that on Monday alone, ships had crossed the boundary 10 times.
An official with the South's Joint Chiefs of Staff said the North's charge is groundless as Seoul does not acknowledge the Pyongyang-set border.
South Korea recognises the Northern Limit Line, drawn unilaterally by the US-led United Nations Command at the end of the 1950-53 Korean War, which has never been accepted by North Korea.
The maritime border has since been disputed by the two Koreas, and the West Sea was the site of deadly naval skirmishes in 1999 and 2002.
"The reckless military provocations... have created such a serious situation that a naval clash may break out," the North Korean military said in a statement on Thursday.
The statement follows a series of recent peace overtures between Pyongyang, which is under pressure to return to international talks about ending its nuclear programme, and Seoul.
In talks on Wednesday, North Korea made a rare expression of regret to Seoul for causing a cross-border flood that killed six South Koreans last month.
Those talks went ahead despite the North test-firing short-range missiles on Monday.
"We are at the moment cautiously observing what the true intention of North Korea is," said Hyun In-taek, Seoul's Unification Minister, in a speech to the European Union Chamber of Commerce.
The two Koreas technically remain in a state of war because their three-year conflict ended in a truce, not a peace treaty, in 1953. They are divided by a heavily fortified Demilitarized Zone.