North Korea is ready for a "sacred war of justice" using a nuclear deterrent, its armed forces minister has said.
Kim Yong-chun accused South Korea of making preparations for war by holding live-fire exercises near the border.
The drills are one of the largest in South Korea's history, and come a month after North Korea shelled a Southern island killing four people.
The US state department condemned the North's latest comments as returning to its "old belligerent tricks".
"We need constructive actions, not heated rhetoric," said spokesman Philip Crowley on his Twitter page, without specifying any actions.
South Korean President Lee Myung-bak has promised immediate retaliation to any further Northern attack.
The BBC's John Sudworth says people on the Korean peninsula are used to fiery rhetoric from Pyongyang, but as the tension escalates, the danger is that one side will feel forced to act on its threats.
The South Korean army acknowledged that the drill was aimed to display its firepower.
Although the South has conducted 47 military drills this year, this is the largest winter live-fire exercise ever conducted on land.
The North earlier branded Seoul's exercises "warmongering" but until now had not threatened the South with any retaliation.
During a meeting in the North Korean capital, Mr Kim, quoted by Pyongyang's Korean Central News Agency, accused the South of preparing for a new Korean War.
"The South Korean puppet forces perpetrated such grave military provocation as renewing their shelling against the DPRK [North Korea] during their recent exercises for a war of aggression in the West Sea [Yellow Sea] of Korea," he said.
"This indicates that the enemy's scenario for aggression aimed at the start of another Korean War, has reached the phase of its implementation."
"The revolutionary armed forces of the DPRK are getting fully prepared to launch a sacred war of justice of Korean style based on the nuclear deterrent at anytime necessary to cope with the enemies' actions deliberately pushing the situation to the brink of a war," he added.
Despite possessing enough plutonium to create a bomb, the North is not thought to have succeeded in building a nuclear weapon.
Both China and Russia have called on the South to defuse tensions and US officials too are privately expressing their concern about Seoul's new, more aggressive stance.
South Korea and the US had already been conducting large-scale military exercises, following the apparent torpedoing of a South Korean warship by the North on 26 March, which killed 46 south Korean sailors.
Efforts to redirect the Korean issue back to the negotiating table have been unsuccessful.
China and the North say it is time to return to the six-nation talks about North Korea's nuclear programmes.
But the US, South Korea and Japan have said they will not return to such talks, which have previously involved rewards for the North if it cuts back on nuclear development.
North Korea walked out of the six-party talks in April 2009 and expelled UN nuclear inspectors from the country.