South Korea Monday halted trade with North Korea as part of a package of reprisals for the sinking of one of its warships, drawing strong US support but threats of attack from the communist state.

President Lee Myung-Bak also banned the North's merchant ships from South Korean waters and said Seoul would refer the March 26 attack -- which killed 46 sailors -- to the United Nations Security Council for punishment.

In a nationally televised address, a sombre-looking Lee vowed an immediate military response to any future aggression.

He said South Korea had in the past repeatedly tolerated the North's "brutality."

"But now things are different. North Korea will pay a price corresponding to its provocative acts," he said, demanding an apology for the sinking of the Cheonan, a 1,200-tonne corvette.

US President Barack Obama directed his administration to review North Korea policy, and commanded his armed forces to work closely with South Korea "to ensure readiness and to deter future aggression," the White House said.

But the North's military threatened to open fire at any South Korean loudspeakers broadcasting propaganda across the border if Seoul follows through on its pledge to install them as part of the reprisals.

"From now on, (South) Korea will not tolerate any provocative act by the North and will maintain the principle of proactive deterrence," Lee said.