North Korea has said its relations with South Korea had been driven into a "catastrophic" phase again, warning the South's scattering of anti-Pyongyang leaflets could spark a war.

The statement on Saturday came hours after Pyongyang's foreign ministry said the North would bolster its "war deterrent", accusing the US of deliberately escalating tension through ongoing joint military drills with the South.

The leaflet scattering operation and smear campaign ... are undisguised acts of declaring a war

North Korea spokesman

Earlier, the North's military condemned the South's seizure of a North Korean fishing boat near the disputed sea boundary as a "grave provocation" and threatened to retaliate.

South Korea handed back the boat which was captured with three sailors aboard near the disputed Yellow Sea border late Thursday.

"The North-South relations have been driven into a catastrophic phase again due to the South Korean authorities' frantic scattering of anti-DPRK [North Korea] leaflets", said a spokesman for the North's delegation to the high-level contact with the South.

"The leaflet scattering operation and smear campaign ... are undisguised acts of declaring a war." he said.

The North said on Wednesday the South's military scattered leaflets denouncing its regime and leader. Kim Jong-Un. by using gas-filled balloons floated from frontline islands near the disputed sea border in the Yellow Sea.

The South denied the allegation. An unidentified military official told Yonhap news agency that the leaflets were launched by a local Christian group.

Earlier this month, the North's powerful National Defence Commission threatened to "demonstrate" its nuclear deterrent in the face of what it called US hostility and joint US-South Korean military exercises, which began last week.

The North has fired salvos of short-range rockets into the sea as a demonstration and in protest at the drills.

Seoul warned on Wednesday that the North could be building up towards a major provocation, but added there were "no signs" of an imminent nuclear test.

Rare talks between the two Koreas last month ended in a rarer note of agreement, with the high-level contact resulting in the realisation of a one-off reunion of families separated by the 1948 division of Korea.

Source: AFP