Dozens of roadblocks have been set up in areas close to the border
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South Korea has put frontline troops on high alert after finding two holes cut in the wire along its heavily fortified buffer zone with North Korea.
A spokesman said it was highly possible that North Korean spies or commandos had infiltrated into the south.
Roadblocks have been set up and officials said reservists might be called up to search for any intruders.
The alert coincides with a visit by US Secretary of State Colin Powell, who is on the final leg of an East Asian tour.
Mr Powell has been trying to revive stalled six-way talks on North Korea's nuclear weapons plans.
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KOREAN BORDER
Heavily fortified border has separated the two Koreas since 1950-53 war
240 km long and 4 km wide, the DMZ takes up about 5% of the Korean peninsula
N Korea has 1.1m man army, S Korea and US forces total more than 700,000
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The two holes, about 40cm (16 inches) wide, were found in the parallel fences that mark the southern boundary of the 4km-wide demilitarised zone that separates the two Koreas.
They were found by a border patrol in the early hours of Tuesday morning near the town of Cheolwon, Yonhap news agency quoted defence ministry spokesman Hwang Jung-sun as saying.
The holes were square, and the wire netting had been bent over flat into the South, one report said.
Mr Hwang said the army was hunting for possible infiltrators.
South Korean army divisions manning the front line have been placed on the highest state of alert, Jindogye-1.
Dozens of additional roadblocks have been set up between Seoul and the border 40km (25 miles) away.
Mr Hwang said that the focus was not just on spies but that North Korean soldiers had also defected over the border in the past and that that was another possibility.
Civilian defectors, however, are unlikely to attempt to cross into South Korea over the heavily militarised frontier. They are much more likely to try to escape into China.
"In any case, we are stepping up security," Mr Hwang said.
There have been similar scares in the past.
In 1996, a North Korean submarine ran aground in South Korean waters. In 1968, North Korean commandos reached within a few hundred metres of the presidential Blue House before being caught.
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Meanwhile, Mr Powell has been speaking in a news conference following talks in Seoul.
Mr Powell said the US and other nations would put "maximum effort" into achieving a "peaceful denuclearised Korean peninsula".
Some South Koreans think the US has made peace less likely
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Mr Powell said the US did not intend to attack North Korea, and stressed that the "nuclear issue... (kept) the international community from assisting North Korea".
There have been three rounds of six-party talks, aimed at pressuring Pyongyang to scrap its nuclear weapons programme, but North Korea refused to attend a fourth round in September.
The communist state sees no point in talking before the US presidential election on 2 November, says the BBC's correspondent in Seoul, Charles Scanlon.
Experts believe North Korea has already extracted enough plutonium for six or seven atomic bombs, although this is difficult to verify as Pyongyang will not submit to inspections from the UN's nuclear agency.
Earlier, Mr Powell reportedly said there was "no comparison" between North Korea's weapons programmes and recently revealed secret nuclear experiments carried out in the South.
In remarks relayed by South Korea's Unification Ministry, he said the experiments - which prompted investigations by the UN's nuclear watchdog - were of "minor concern".
South Korea admits its scientists conducted tests in 1982 and again four years ago to extract plutonium and to enrich uranium. It says they were for scientific research and were not aimed at weapons development.