http://www.bbc.co.uk/news/world-asia-pacific-11818005South Korea says it has returned fire after North Korea fired around 200 artillery shells onto one of its border islands, reportedly killing one marine.
The South's military was placed on its highest non-wartime alert after the shells landed on Yeonpyeong island.
North Korea has not yet commented on the incident, in which three marines and two civilians were also injured.
Correspondents say this is one of the most serious since the Korean War ended without a peace treaty in 1953.
There have been occasional cross-border clashes since, but the latest incident comes at a time of rising regional tension.
North Korea's reclusive leader Kim Jong-il is believed to be ill and trying to engineer the succession of his youngest son. And on Saturday, North Korea showed off what it claimed was a new uranium enrichment facility - potentially giving it a second route to a nuclear weapon.
The move prompted the US special representative for North Korea, Stephen Bosworth, to rule out the resumption of six-party talks on resolving the nuclear issue.
South Korean presidential spokesman Kim Hee-jung also said it was investigating a possible link between the artillery attack and recent maritime exercises near the western sea border earlier on Tuesday.
'Illegal firing'
South Korean officials said artillery rounds began landing on Yeonpyeong island, near the disputed inter-Korean maritime border about 100km (60 miles) west of the Korean Peninsula.
"A North Korean artillery unit staged an illegal firing provocation at 1434 (0534 GMT) and South Korean troops fired back immediately in self-defence," the defence ministry said.
A resident on the island, where between 1,200 and 1,300 people live, told the AFP news agency that dozens of houses were damaged, while television pictures showed plumes of smoke rising above the island.
"Houses and mountains are on fire and people are evacuating. You can't see very well because of plumes of smoke," a witness on the island told YTN television station. "People are frightened to death."
The military said one marine was killed and three others were injured, according to South Korea's YTN television. Two civilians were also hurt.
The South Korean military has fired 80 artillery shells in response and also deployed fighter jets to Yeonpyeong.
However, President Lee Myung-bak urged officials attending an emergency cabinet meeting to try to prevent any further escalation.
A spokesman for the Chinese foreign ministry said that both countries should "do more to contribute to peace".
"What's imperative now is to restart six-party talks as soon as possible," Hong Lei told a news conference in Beijing.
The impact has already been felt on financial markets, with both the Korean won and the Japanese yen falling in value.
This western maritime border, also known as the Northern Limit Line, has been the scene of numerous clashes in the past.
In March, a South Korean warship went down near the border with the loss of 46 lives. International investigators say a North Korean torpedo sank the ship, although Pyongyang has denied any role in the incident.
Since then relations between the two neighbours have remained tense.