North Korea is angry about Seoul's new position on economic aid
North Korea has accused Seoul of sending warships into its waters, amid a growing row between the countries.
Pyongyang promised "unexpected countermeasures" should the alleged incursion continue. South Korean officials deny the claims.
The latest threats come after days of sabre-rattling, the North test-firing missiles and Seoul warning it would respond to any attacks.
South Korea's leader Lee Myung-bak has accused the North of fuelling tensions.
Since taking office, Mr Lee has angered Pyongyang by linking aid to progress on denuclearisation and human rights.
Tensions between the two sides have been growing all week, and culminated on Thursday with a threat from the North to suspend all dialogue with its neighbour and close the border.
The North's KCNA news agency, the mouthpiece of the Communist regime, then accused Seoul of making a military incursion.
"The South Korean military's warmongers have sent three battleships deep into our territorial waters in the West Sea [Yellow Sea] at around 11:45 am (0245 GMT) on April 3," the KCNA report said.
"South Korea's military should clearly bear in mind that an unexpected countermeasure will follow if they continue to push battleships into [our waters] and raise tensions."
The accusations come after a week in which North Korea has expelled South Korean managers from a joint industrial base, test-fired short-range missiles and criticised Mr Lee in state media.
The communist nation is also seeking an apology from the South after General Kim Tae-young said Seoul could target the North's suspected nuclear sites if an attack looked imminent.
THE TWO KOREAS
1910: Korean Peninsula colonised by Japan
1945: Divided into US-backed South and Soviet-backed North
1950-1953: Korean War, no peace deal signed
1987: North Korea bombs a South airliner, killing 115
1990s: South Korea introduces conciliatory Sunshine Policy
2000: Kim Jong-il and Kim Dae-jung hold first leaders' summit
2007: Kim Jong-il and Roh Moo-hyun hold second leaders' summit
On Wednesday, South Korea's Defence Ministry sent a statement to North Korea asking it to stop "slander" and activities that would disrupt the stability of the Korean peninsula.
Yonhap news agency says that in response, a North Korean general sent a statement threatening unspecified "military countermeasures".
He also dismissed South Korea's statement as "shenanigans", the agency said.
Meanwhile, in a speech on Thursday, the South Korean president defended his general's remarks.
"The comments by Chairman Kim (Tae-young) of the Joint Chiefs of Staff were a natural and ordinary reply to lawmakers' questions," he said.
"It shouldn't be interpreted differently. So North Korea's attitude is not desirable."
He called for "substantial dialogue" between the two countries.
The chill between the Koreas comes as talks aiming to implement the North's denuclearisation deal appear to have stalled.
Pyongyang agreed last year to abandon its nuclear programme in return for aid.
But it then missed a deadline to fully disclose all of its activities and progress on the deal has come to a halt.