North Korea threatened "all-out war" in response to exercises by South Korean and US troops due to start Monday and told Seoul to stop cross-border propaganda, upping the rhetoric against its arch rivals.

Pyongyang would respond to the upcoming drill, with "unprecedented all-out counteraction" that would turn the South's capital Seoul into a "sea of flames", the Korean Central News Agency said Sunday.

"The army and people of the DPRK will return bolstered nuclear deterrent of our own style for the continued nuclear threat... and our own missile striking action for their vicious attempt to eliminate our missiles," KCNA said.

The statement was in contrast to more conciliatory comments it made earlier this year aimed at securing peace talks with the United States but came after Pyongyang officials stormed out of talks with the South this month.

Some 200,000 South Korean and 12,800 US troops will take part in the Key Resolve/Foal Eagle drills, which the North has labelled a preparation for war.

Key Resolve, a command post exercise involving computer simulation, will last until March 10. Part of Foal Eagle, a joint air, ground and naval training exercise, will continue through April 30.

The exercise reportedly includes scenarios such as localised provocations, tracing weapons of mass destruction, a sudden regime change in the communist state and an exodus of refugees, Yonhap news agency reported.

It also said the US planned to deploy it 97,000-tonne aircraft carrier USS Ronald Reagan for the drills.

Cross-border tension has been acute since the North's deadly shelling of a frontier island in November that killed four South Koreans including two civilians and sparked fears of war.

The first attack on civilians since the 1950-53 Korean War prompted Seoul to stage a series of military drills alone or with the United States and to expand regular exercises in a show of force against Pyongyang.

The South also revived a propaganda campaign across the heavily-fortified border targeting ordinary North Koreans -- a practice it had suspended since 2000 due to protests by the North.

Conservative opposition politician Song Young-Sun, citing a report from the defence ministry, said on Friday balloons carrying humanitarian supplies such as medicine and clothes were being launched across the border by the military.

She said the balloons also carried news of civil uprisings against repressive regimes in the Arab World and were aimed at getting information to the people of North Korea, who are largely cut off from the outside world.

The South's private activists also have for years used helium balloons to smuggle US dollar notes, DVDs and leaflets denouncing the North's regime and leader Kim Jong-Il into the hermit state.

The North threatened on Sunday it would begin firing on border areas where the South's activists and military launch the balloons.

"Our army will stage a direct fire at... sources of the anti-DPRK psychological warfare to destroy them on the principle of self-defence, if such actions last despite our repeated warning," KCNA said.

Pyongyang tightly controls access to the Internet and attempts to block other sources of information about the outside world. But DVDs and mobile phones smuggled from China have been eroding barriers.

A survey by two US academics of some 1,600 refugees from the North found that roughly half of them had access to foreign news or entertainment -- a sharp rise from the 1990s.

A report said Sunday South Korea would send back 31 North Korean workers this week who had drifted across the two countries' tense sea border earlier this month.

South Korea was close to completing investigations on the 11 men and 20 women, none of whom had expressed an intention to defect to the South, Yonhap news agency reported, citing a Seoul official.