South Korea has held live firing drills despite threats of war from the North.
The action started early on Monday morning after an emergency UN Security Council meeting failed to work out a solution to the crisis.
South Korea's military delayed the drill from the weekend due to bad weather but the rumble of artillery fire could heard through air raid bunkers on the island of Yeonpyeong.
The exercise was held in a disputed area which was shelled by Pyongyang in November. Two civilians and two marines died in the worst attack on South Korea territory since the Korean war ended in 1953.
The international community has been split on where it stands on the crisis.
China and Russia have cautioned Seoul against holding the exercise, while the United States has backed South Korea's right to hold the drills.
Korea markets have been hit with the won falling more than one per cent to a four-week low against the dollar and stocks also down one per cent in early trade.
US diplomatic troubleshooter Bill Richardson, visiting Pyongyang to try to ease tensions, won agreement from North Korea to allow UN nuclear inspectors to return according to CNN which has a team travelling with him.