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South Korean artillery soldiers take positions during an exercise against possible North Korean attacks, in Paju, north of Seoul, near the demilitarized zone between the two Koreas.Lee Jin-man

North Korea warned of war, ousting South Koreans from a joint economic zone, cutting all ties with the south and firing off salvos of bellicose rhetoric as tensions escalated sharply on the divided peninsula.

Pyongyang, accused of the unprovoked sinking of a South Korean warship, threatened "all-out war" if it was punished and unleashed a spate of invective at its far-richer, democratic neighbour.

There's "no need to show any mercy or patience for such confrontation maniacs, sycophants and traitors and wicked warmongers as the [President]Lee Myung Bak group," the state-run northern news agency said. It added ties would remain severed as long as Mr. Lee remained president of South Korea.

A North Korean dissidents group in Seoul, which has previously proved reliable, said North Korean's isolated and unpredictable leader Kim Jong-il has issued a call to arms using an intercom network wired into the homes of most North Koreans.

According to the group, the "Dear Leader's" message said "if South Korea attacks us [with the backing of]the United States and Japan," it will be a chance to wage war and "accomplish Korean unification."

Despite the escalation of bellicose accusations - with South Korea reinstalling loudspeakers to blast propaganda across the demilitarized zone and North Korea threatening to shoot them - war remains unlikely. But any serious conflict would entail a risk of embroiling either China or the United States or both.

Tensions have soared and eased ever since the 1953 truce ended a bloody, three-year conflict that pitted a U.S.-led coalition against communist North Korea backed by China. Even occasionally violent confrontations along the heavily fortified border dividing the peninsula or naval skirmishes usually subside with dire threats and a long period of tension.

Still the sinking of the South Korean naval corvette Cheonan near a disputed maritime boundary in the Yellow Sea on March 26 and the subsequent international probe that established it was torpedoed by a North Korean submarine has created the worst crisis on the peninsula for years.

The Obama administration has backed South Korean calls for punitive measures against Pyongyang. U.S. warships will join the South Korean navy in anti-submarine war games to underscore the military alliance.

U.S. State Secretary Hillary Clinton was in Beijing this week seeking to persuade China to back more UN Security Council-imposed sanctions on North Korea.

But Ms. Clinton gave no hint that she had managed to get China's ruling communists to take a hard line with North Korea.

"[China]shares with us the goal of a denuclearized Korean Peninsula and a period of careful consideration in order to determine the best way forward," Ms. Clinton said.

"China's behaviour thus far regarding the Cheonan has been clumsy, weak and anachronistic," Victor Cha, a Korea expert at the Center for Strategic and International Studies, wrote on the Washington think tank's website. "Beijing's 'muddle through' strategy as a disappointing symbol of its inability to play a leadership role in East Asia.''

Some analysts believe China fears too much pressure could trigger a collapse of the brutal North Korean regime where the ailing Kim Jong-il is apparently attempting to orchestrate the handoff of power to his 27-year-old youngest son Kim Jong-un, who's referred to as the "Brilliant Comrade."

Pyongyang also announced it was banning all South Korean ships and aircraft from its territorial waters and airspace - a tit-for-tat response to punitive measure announced by Seoul. It also said it would expel all South Korean officials who run hundreds of manufacturing sites employing more than 40,000 North Koreans at Kaesong, just north of the border.

Whether North Korea would make good on the threat to shut down Kaesong, which represents a major chunk of its economy remained unclear.

North Korean news broadcasts carried sombre announcements.

"The Committee for the Peaceful Reunification of Korea … formally declares that from now on it will put into force the resolute measures to totally freeze the inter-Korean relations, totally abrogate the agreement on non-aggression between the north and the south and completely halt the inter-Korean co-operation," said one.

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