North Korea has increased its armed forces by 20,000, the report said
North Korea has recently completed the deployment of new medium-range missiles capable of reaching more parts of Asia, South Korea says.
The communist nation also bolstered its special forces and its navy, a Ministry of Defence white paper said.
North Korea and its 1.19 million troops constituted a "direct and serious threat", the report said.
The white paper comes amid speculation that Pyongyang could be planning to test-fire a new long-range missile.
It also comes amid heightened tension between the two Koreas, over South Korean leader Lee Myung-bak's decision to link economic aid to progress on denuclearisation.
Observers believe Pyongyang could test-fire its Taepodong-2 missile in a bid to improve its bargaining power with the new US administration over the stalled aid-for-disarmament deal.
The industry journal, Jane's Defence Weekly, is reporting that its analysis of satellite imagery suggests a test launch could take place within the next few days.
According to the white paper, the new medium-range missiles can travel up to 3,000km (1,860 miles) - putting much of North and South East Asia within range - and carry a warhead of up to 650kg (1,430lb).
The report, which is issued every two years, did not say how many of the missiles had been deployed.
But it said North Korea had also reinforced its navy by bolstering its submarines.
The overall size of the military had grown by 20,000, it said, and the number of special forces troops - lightly-equipped soldiers trained to infiltrate the South - went up by a third to 180,000.
"Their aim appears to blur the line between friend and foe once a conflict erupts," Yonhap news agency quoted Shin Won-Sik, the defence ministry's deputy of policy planning, as saying.
The report estimated North Korea's plutonium stock at 40kg - enough for at least five nuclear weapons.
"North Korea's developing and reinforcing of conventional weaponry, as well as the weapons of mass destruction like nuclear and missiles, and the front-line deployment of military power are a direct and serious threat to our security," the white paper said.
North Korea carried out its first nuclear test in October 2006. But experts believe it does not yet have the technology to make a nuclear warhead small enough to mount on a missile.