South Korea said there was a "very high" probability that North Korea, after weeks of threats of war, would test-launch a medium-range missile at any time as a show of strength.
The Combined Forces Command in Seoul has raised its "Watchcon 3" status, a normal defence condition, by one level in order to step up monitoring, South Korea's Yonhap news agency reported on Wednesday.
The senior Defence Ministry official also said that North Korea has completed preparations for a missile test that could come "any day".
The official, who spoke on condition of anonymity, said the North's military is capable of conducting multiple missile launches involving Scud and medium-range Rodong missiles, as well as a missile transported to the east coast recently.
The warning came as North Korea prepared to mark the April 15 birthday of its founder Kim Il-sung.
Admiral Samuel Locklear, commander of US forces in the Pacific region, said the US military also believed the North had moved an unspecified number of Musudan missiles to its east coast.
An Obama administration official, speaking on condition of anonymity, told the Reuters news agency "our working assumption is that there are two missiles that they may be prepared to launch".
Ban Ki-moon, UN secretary general, who once served as South Korean foreign minister, said he is "deeply concerned and troubled" at the level of tension in the peninsula.
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"If any small incident caused by miscalculation or misjudgement, it may create an uncontrollable situation," Ban said.
Yun Byung-se, the South Korean foreign minister, told a parliamentary hearing in Seoul that he was working through diplomatic channels in an attempt to rein in Pyongyang.
China is North Korea's only major ally, although it backed recent UN resolutions against Pyongyang, and Moscow was a supporter of North Korea as the Soviet Union.
Sergei Lavrov, Russian foreign minister, gave warning on Wednesday against stoking the North Korea crisis with military manoeuvres, but stressed Wednesday that Moscow and Washington had a common stand.
"On North Korea we have no differences with the United States," Lavrov told journalists as he met John Kerry, US defence secretary.
"One just shouldn't scare anyone with military manoeuvres and there's a chance that everything will calm down."
Pyongyang has frequently tested short-range Scud missiles, but the longer-range Musudan and Nodong missiles are an unknown quantity.
The Musudan missiles are reckoned to have a range of roughly 3,000-3,500km.
The North has earlier said it would target American bases in the Pacific, although it is not known whether the untested missiles have the range to do so.
"If the missile was in defence of the homeland, I would certainly recommend that action [of intercepting it]. And if it was defence of our allies, I would recommend that action," Admiral Locklear told a US Senate hearing in Washington.
Pyongyang has turned up its rhetoric in recent weeks after the United Nations Security Council imposed sanctions for the impoverished state's third nuclear weapons test in February.
It has threatened a nuclear strike on the United States - something it does not have the capacity to carry out - and "war" with the South Korea.
In a separate development, a group of South Korean workers left the the joint industrial zone of Kaesong ahead of a deadline issued by North Korea to shut down the border.
Al Jazeera's Marga Ortigas, reporting from the border town of Paju, said a convoy of cars carrying the workers had crossed from the North on Wednesday morning.
She added that more than 100 workers were expected to leave by the deadline, which was set to expire later on Wednesday. Earlier, it was reported that only 79 workers were set to leave.
With the updated number, only about 300 workers and business owners are expected to stay at the complex within North Korea beyond the deadline.
Another 35 workers are also planning to on Thursday, but it is uncertainty whether they will be allowed across the border by North Korea authorities.
Despite the alert level, our correspondent also said that civilians in South Korea are not taking the threats from the North as seriously as the government.
The North has been threatening the United States and its "puppet" South Korea on an almost a daily basis in recent weeks, although the threats appear to be aimed partly at boosting internal support for young leader Kim Jong-un.
Analysts say the current tensions will likely last until the end of April, when joint US-South Korean military drills end.