North Korea says it is ready to respond to "any hostile act"
South Korean and US troops have gone on higher alert after North Korea said it was scrapping the treaty that halted the Korean War more than 50 years ago.
Seoul's defence ministry said it would increase reconnaissance operations over North Korea.
North Korea recently tested a nuclear device and several short-range missiles but no significant troop movements within the country have been reported.
The UN Security Council is discussing a response to North Korea's nuclear test.
"Watchcon II took effect as of 0715 [2215 GMT]," said South Korean defence ministry spokesman Won Tae-Jae, adding that the five-stage combat alert level was at its second-highest level.
"Surveillance over the North will be stepped up, with more aircraft and personnel mobilised," he said.
The US is to bolster its intelligence support.
The UN Command said the armistice - which has preserved a tense peace for more than five decades on the Korean peninsula - remained in force.
The UN Command is a multi-national military force headed by the US which fought for the South in the 1950-53 Korean war, and still stations 28,500 troops in the South.
Pyongyang has blamed its decision on South Korea's decision to join a US-led initiative to search ships for nuclear weapons, calling it a "declaration of war".
"Any hostile act against our peaceful vessels, including search and seizure, will be considered an unpardonable infringement on our sovereignty," said a spokesman for the North's army.
"We will immediately respond with a powerful military strike."
This latest crisis comes just days after North Korea carried out an underground nuclear test, followed by the launch of several short-range missiles into the Sea of Japan.
27 May - North Korea says it is abandoning the truce that ended the Korean war and reportedly test-fires another missile
26 May - The North test-fires short-range missiles as South Korea announces it will join a US-led initiative to control trafficking in weapons of mass destruction
26 May - President Barack Obama pledges military support for America's East Asian allies, as the UN condemns the nuclear test
25 May - North Korea stages its second nuclear test, triggering international condemnation
29 April - Pyongyang threatens to carry out a nuclear test unless the UN apologises for criticising its recent rocket launch
14 April - Pyongyang says it is ending talks on its nuclear activities and will restore its disabled nuclear reactor after UN criticism of its rocket launch
5 April - The North goes ahead with a controversial rocket launch, seen by major governments as a cover for a long-range missile test
No other significant troop movements within the country have been reported, but analysts have warned of a further increase in military tension, including the possibility of a naval clash along the sea border between the two Koreas.
The UN Security Council's five permanent members - plus Japan and South Korea - are working on a strong resolution condemning North Korea's actions, including possible punitive measures.
Washington has reaffirmed US commitments to its allies Japan and South Korea while accusing Pyongyang of "sabre-rattling and bluster and threats".
US Secretary of State Hillary Clinton condemned the North's violation of Security Council resolutions, but also held out hope that North Korea would return to six-nation disarmament talks.
Moscow said that while world powers should be firm, they should not inflame tensions, adding that the stand-off could only be solved through talks.
Last month North Korea launched a long-range rocket over Japanese airspace, angering the international community.
Pyongyang said the rocket had carried a peaceful communications satellite, but several nations viewed it as cover for a missile test.
The UN Security Council condemned the launch and, in retaliation, North Korea announced it was quitting long-running six-nation negotiations on its nuclear disarmament.
It ejected all international monitors and said it would reopen its main nuclear plant at Yongbyon, which was closed in July 2007 as part of a disarmament deal.
When North Korea agreed in February 2007 to abandon its nuclear ambitions in return for aid and diplomatic concessions, there was real hope of reaching a settlement.
But the negotiations stalled as it accused its negotiating partners - the US, South Korea, Japan, China and Russia - of failing to meet agreed obligations.