North Korea Monday forswore retaliation against a South Korean live-fire drill and held out an olive branch over its nuclear drive, raising hopes for an easing to the region's worst crisis in years.

The communist state said it "did not feel any need to retaliate against every despicable military provocation", despite previously vowing a deadly riposte to the South's drill on the border island of Yeonpyeong.

"The world should properly know who is the true champion of peace and who is the real provocateur of a war," the North's military command said in a statement on the official news agency KCNA.

North Korea had used a November 23 live-fire exercise by South Korean marines on Yeonpyeong to justify a bombardment of the Yellow Sea island that killed four people.

South Korea, defying Chinese and Russian pressure, went ahead with another exercise on Monday that involved heavy artillery, air force jets and the reported deployment of two naval destroyers.

The drill came after the UN Security Council Sunday failed to agree a statement on the Korean crisis, with diplomats saying that China had refused to allow any public condemnation of its communist allies in Pyongyang.

China on Monday issued a strong appeal at the UN for "maximum restraint" by the two Koreas and vowed to make new efforts to ease the military tensions.

"We strongly appeal relevant parties to exercise maximum restraint, act in a responsible manner and avoid increase of tensions," China's deputy ambassador Wang Min said in a rare public statement at the UN.

"China strongly urges both sides of the peninsula to keep calm and restraint, solve issues through peaceful dialogue and engagement. China will continue to make our efforts toward this end," Wang said.

Seoul, which was outraged last month by the first shelling of civilian areas since the 1950-53 Korean War, rejected criticism from Beijing and Moscow.

"As a sovereign nation, it is our just right to stage a military exercise for the defence of our territory... nobody can intervene," President Lee Myung-Bak said, after winning reaffirmations of US and Japanese support.

Yonhap news agency said the South fired 1,500 rounds from various guns including K-9 self-propelled howitzers, 105mm howitzers and 81mm mortars during the drill.

Last week, as South Korean forces prepared for the live firing, North Korea threatened a new attack that would be "deadlier (than November 23)... in terms of the powerfulness and sphere of the strike".

But its language promising restraint was very different, and was accompanied by conciliatory gestures offered during a visit to Pyongyang by veteran US troubleshooter Bill Richardson.

Richardson, a former US ambassador to the UN, said North Korea was ready to permit the return of UN nuclear inspectors booted out in April 2009, agreeing to grant them access to a newly unveiled uranium enrichment plant.

The New Mexico governor said Pyongyang was also prepared to negotiate "a deal for a third party, such as South Korea, to buy fresh-fuel rods from North Korea".

The North would discuss a military commission, grouping representatives from the two Koreas plus the United States, "to monitor and prevent conflicts in the disputed areas of the West (Yellow) Sea".

And it was ready to create "a hotline between the North Korean and South Korean militaries to avert potential crises", Richardson said in a statement, before his expected departure for Beijing on Tuesday.

In Pyongyang over the weekend, the US official met top nuclear negotiator Kim Kye-Gwan and Major General Pak Rim-Su, who leads North Korean forces along the tense border with the South.

Richardson said he was "very encouraged" that North Korea's military had vowed no retaliation after South Korea's exercise of Monday.

But South Korea and the United States were cautious about the nuclear offer.

"We will be guided by what North Korea does, not what it says it might do," State Department spokesman Philip Crowley told reporters. "The key is following through and implementing that decision and meeting its international obligations."

Even if the North were to permit return of UN atomic inspectors, South Korean foreign ministry spokesman Kim Young-Sunhe said, "we will have to make an overall assessment based on how much access is given to the inspectors and what the North's intentions were (in accepting them)".