South Korean Marines staged a live-fire exercise Wednesday near the disputed Yellow Sea border with North Korea amid high tensions over a display of front-line Christmas lights.

The exercise involving self-propelled howitzers and a multiple rocket launch system was held on two islands -- Baengnyeong and Yeonpyeong, the Joint Chiefs of Staff said.

Hundreds of island residents evacuated into safe zones during the two-hour drill, but there was no response from the North, it said.

A similar drill on Yeonpyeong in 2010 provoked a North Korean artillery barrage which killed four people and sparked international alarm.

The exercise came after the Marines strengthened guard around a giant display featuring thousands of glittering bulbs on a tree-shaped steel tower in Gimpo west of Seoul.

The lights, put up on Saturday, will remain switched on until early January. They can be seen several kilometres away in the impoverished North.

The North has condemned the display as "psychological warfare" by its capitalist neighbour, aimed at spreading Christianity in the communist state.

"This is not just a mere religious service but part of anti-DPRK (North Korea) psychological warfare aimed to rattle the nerves of the DPRK and slander it," Minju Joson, the North's government newspaper, said on Wednesday

"This risks the occurrence of a shocking armed conflict in the West coast where military tension simmers," it said, warning Seoul would be "fully accountable for any shocking conflict that may occur because of the tower".

Before Seoul's "Sunshine Policy" of engagement with Pyongyang was launched in 1998, the seasonal lighting displays were common.

In 2004 the Koreas agreed to halt official-level cross-border propaganda and the South stopped the Christmas border illuminations.

They were resumed in 2010 after the shelling of a South Korean island, but were suspended last year in a conciliatory gesture following the death of the North's leader Kim Jong-Il.

This year's illuminations have provoked fear among some local residents who staged a protest amid concerns about potential retaliation from the North.