South Korea started nationwide live-fire naval exercises on Monday despite Pyongyang's warnings against conducting "provocative" drills in disputed waters off the west coast of the divided peninsula.
The South's military said the exercises were scheduled to take place in the vicinity of the tense Northern Limit Line (NLL), but not near Yeonpyeong island which was hit by a barrage of North Korean shells 13 days ago.
Pyongyang said the drills, expected to last around a week, showed the South was "hell-bent" on setting off a war.
Among the four South Koreans killed in the attack were two civilians, whose funerals were held on Monday.
The North justified the clash saying the South had fired artillery rounds into its waters.
The South said it had been conducting regular drills in the area but that they were "harmless" and on its side of the NLL.
(Bae Bok-soon, elder sister of Bae Bok-chul, 60, cries as she holds a coffin during the funeral for the two civilians who died when North Korea shelled Yeonpyeong Island.)
South Korea's military said the latest round of naval drills would take place at 29 locations to the west, east and south of the peninsula.
The locations included Daecheong Island, one of five major islands near the NLL off the North's west coast, and the site of a deadly naval skirmish last year.
The North's KCNA state news agency said on Sunday the South's "frantic provocations ... are rapidly driving the situation on the Korean Peninsula to an uncontrollable extreme phase. No one can predict to what extent the situation will deteriorate in the future."
North Korea disputes the NLL, a sea border established by the United Nations, without Pyongyang's consent, at the end of the 1950-53 Korean War.
The South's new Defence Minister Kim Kwan-jin has vowed to hit back hard against the North if provoked again, saying Seoul will respond with bombs and air power next time.
But in a sign locals from Yeonpyeong do not expect the situation to escalate, an increasing number of residents have returned to their homes in recent days.
South Korean Prime Minister Kim Hwang-shki said on Monday the government would spend $30 billion won ($26.5 million) on rebuilding the island. He added that foreign investment and tourism had been unaffected by the incident.