South Korean defence forces sank the submarine, thought to be from North Korea, after chasing it for several hours on Thursday.

South Korean troops have set up roadblocks along the country's south coast.

Andrew Wood in Seoul: "Pictures released by the military show a semi-submersible vessel"

Japan has also put its troops on alert, mobilising military aircraft and boats.

The suspect vessel was spotted off South Korea's south-west coast.

South Korean gunboats, backed by helicopters and fighter planes, fired and sank what the military described as a semi-submersible craft of the type used by North Korean spies.

A defence official in Seoul said the body of an North Korean frogman, armed with a hand grenade, was discovered nearby.

Search for survivors

Hwang Dong-Kyu, a South Korean military spokesman, said: "The South Korean military fired at the North Korean spy vessel as a warning.

"But the North Korean fired back at our vessels and took evasive action. So our navy fired at the vessel and sank it."

South Korea Defence Minister Chun Yong-taek is to demand a full apology from North Korea.

There has been no word from the North about the incident.

South Korean and Japanese patrol vessels joined by the are now looking for other bodies and wreckage in the area.

Suspected submarine

The vessel was discovered in waters 2km off the Inp'o coast guard post at Yosu, at around 2315 local time (1415GMT) on Thursday.

After looking at it through night-vision cameras, the soldiers concluded it was a mini-submarine. Civilian ships were told to stay out of the area.

As many as 12 South Korean navy ships and three naval fighter jets chased the vessel.

It was eventually sunk an hour later about 100km (63 miles) south of Koje island.

Looking for spies

With the submarine able to carry about 10 people, the authorities are also looking for survivors and the military have been placed on their highest state of alert.

BBC Seoul Correspondent Andrew Wood says there are many islands off the south coast of the Korean peninsula, which offer cover for such infiltration missions.

The two Koreas are technically still at war, having never signed a peace treaty at the end of their conflict 45 years ago.

There have been a number of similar incidents but this is the first in which the opposing forces have exchanged fire.

It comes on the first anniversary of the election of the South Korean President, Kim Dae-jung, and our correspondent says this incident will test his policy of engagement with Pyongyang.

Last month troops and police were put on high alert after what was believed to have been a North Korean mini-submarine was spotted off South Korea's western coast.

The vessel was intercepted and chased off by South Korean military patrols in the area of Kangwha Island.

In June, a North Korean submarine got caught in fishing nets off South Korea, and all nine people on board died.