South Korea's president urged North Korea Sunday to end its military provocations but Pyongyang threatened the "severest punishment" over Seoul's massive joint war games with the United States.

The rivals exchanged tit-for-tat warnings as the South unveiled a roadmap for the reunification of the Korean peninsula on the eve of a 10-day exercise involving some 56,000 South Korean and 30,000 American soldiers.

"It is about time Pyongyang looked straight at reality, made a courageous change and came up with a drastic decision," South Korean President Lee Myung-Bak said.

The Koreas "need to overcome the current state of division and proceed with the goal of peaceful reunification," he said in a speech to celebrate Korea's liberation from Japanese colonial rule in 1945.

Lee warned that South Korea would not tolerate any military provocations from its neighbour.

"The North must never venture to carry out another provocation nor will we tolerate it if they do so again," he said.

But Pyongyang issued a fresh warning Sunday that its army and people would "deal a merciless counterblow" to the United States and South Korea over the war games.

"The military counteraction of (North Korea) will be the severest punishment... ever met in the world," a spokesman for the North's army General Chief said in a statement quoted by state media.

US and South Korean troops will start the computerised war games, called "Ulchi Freedom Guardian (UFG), on Monday as part of a flurry of military drills in response to the sinking of a South Korean warship in March.

General Walter Sharp, who heads some 28,500 US troops based in the South, described the exercise as "one of the largest joint staff directed theatre exercises in the world".

A separate security drill involving some 400,000 South Korean government officials and soldiers will be held during the period, Yonhap news agency said.

The North denounced the war games as "practical actions aimed at full-dressed military invasion".

Cross-border tensions have been high since May when Seoul and Washington, citing multinational investigation, said Pyongyang was behind the March attack that left 46 sailors dead.

The North has angrily denied responsibility and threatened retaliation.

In July, South Korea and the United States held a massive joint naval and air drill in the Sea of Japan (East Sea) in a show of force against the North. Last week the South staged its largest-ever anti-submarine drill near the disputed Yellow Sea border.

Tensions further escalated last week after North Korea seized a South Korean squid fishing boat operating off the east coast and fired an artillery barrage into the Yellow Sea when South Korea was wrapping up the anti-submarine drill.

Lee detailed a multi-step blueprint for reunification, starting with a "peace community" after the peninsula is cleared of nuclear weapons.

The next step is to dramatically develop the North's economy and form an "economic community in which the two will work for economic integration", he said.

Eventually, the Koreas will be able "to remove the wall of different systems" and establish a community which will ensure "dignity, freedom and basic rights of all individuals", he said.

"Through this process, we can ultimately bring about the peaceful unification of Korea," he added.

Lee also proposed "unification tax" to finance the hefty cost of reuniting the long-divided nations with a growing economic gap.

Reunification with its impoverished neighbour would cost the South about 1.3 trillion dollars, according to a study commissioned by a parliamentary committee.

Central bank data showed the North's gross domestic product last year stood at 24.7 billion dollars, less than three percent of that in South Korea.

"Through this process, we can ultimately bring about the peaceful unification of Korea," he added.

Lee, who is halfway through his single five-year term, has advocated a hard-line approach towards Pyongyang.

In his biggest cabinet reshuffle a week ago, Lee kept his foreign, defence and unification ministers in place, signalling little change in his policy.

The peninsula was divided into a communist North and a capitalist South after Japan's surrender on August 15, 1945 at the end of World War II ended its annexation of the peninsula.

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US-SKorea drills provocative, says Chinese admiral
A US decision to use a nuclear-powered aircraft carrier in joint naval drills with South Korea constitutes a "fresh provocation" to China and its neighbours, a senior naval officer said Friday.

In a commentary published in the official China Daily, Rear Admiral Yang Yi said Washington would "pay a costly price for its muddled decision" to participate in further drills near Chinese territory over Beijing's objection.

Yang also warned it was "inadvisable" to push a country of 1.3 billion people, noting that there was instead wide scope for US-China naval cooperation should Washington choose the route of caution.

Last week, Pentagon spokesman Geoff Morrell said future joint US-South Korea drills would involve the nuclear-powered USS George Washington in the Yellow Sea, which separates the Korean peninsula from China.

"This would be a fresh provocation following a series of joint US-ROK activities that have caused tensions in East Asia," Yang said, referring to South Korea by its official abbreviation.

"Offending Chinese people is not in the fundamental interest of the US," warned the rear admiral, a former director of the Institute for Strategic Studies at the People's Liberation Army National Defence University.

"Any activity aimed at pushing a country with a 1.3-billion populace with enormous potential would be inadvisable."

The United States and South Korea last month conducted massive joint naval and air exercises in the Sea of Japan, which were opposed by Beijing.

The drills were a show of force against North Korea -- China's ally -- following the sinking of a South Korean warship blamed by Seoul and its allies on a North Korean submarine.

China is North Korea's closest ally and trade partner and Beijing has refused to join in international condemnation of Pyongyang for the incident.

Beijing had expressed concern about the July 25-28 drill, which was initially supposed to be held in the Yellow Sea but was later relocated to the Sea of Japan after Beijing's protests.

China staged its own naval, air and artillery exercises late last month, though it was not clear if the drills had been pre-planned or were in response to the US-South Korea exercise.

"Washington's adherence to the Cold War mentality and its excessive dependence on military means to resolve international disputes will lead the superpower to bigger strategic setbacks," Yang said.

"It is up to the US to take some initiatives to change its long-established position for the sake of better bilateral ties."

US officials worry that Beijing's more assertive stance in the Pacific Ocean could undercut America's long-dominant naval power in Asia.

China maintains that its army build-up is purely for national defence and poses no threat to other countries.