South Korea’s newly appointed defence minister has called for tougher action against North Korea following an artillery exchange on the island of Yeonpyeong in the biggest bombardment since the end of the 1950-53 Korean War.

As tensions mounted, China and the United States were drawn into the row. A Seoul newspaper also reported government plans to sharply increase defence spending next year. "We need to deal with North Korea's provocations strongly," Defence Minister Kim Kwan-jin was quoted as telling presidential aides by the Chosun Ilbo newspaper. "We need to hit back multiple times as hard."

The Korea Economic Dailysaid the government had proposed a 5.8 per cent increase in the 2011 defence budget to about $27 billion to buy more self-propelled artillery and fighter-bombers, far more than the 3.6 per cent rise this year.

It said parliament could approve an even higher amount, given this week's shelling by North Korean forces of a southern island near the disputed maritime boundary.

Lawmakers have blasted President Lee Myung-bak's government for not responding strongly enough. At least four people were killed. The defence minister resigned, taking responsibility, and Kim, a career soldier, was appointed in his place.

Regional giant China, reclusive North Korea's only major ally, has said it is determined to prevent an escalation of the violence but warned against military acts near its coast as US and South Korean forces prepare for exercises in the Yellow Sea.

Meanwhile North Korea issued new warnings against the Yellow Sea drills, calling them an "unpardonable provocation" and warning of retaliatory attacks that would "turn the stronghold of enemies into a sea of fire" if its own territory was violated.

Dignitaries have placed white chrysanthemums on a funeral altar as South Korea honoured two marines killed in the artillery attack by the North. The marines' commander vowed unspecified "thousand-fold" retaliation at the funeral

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