Pyongyang and Seoul traded fire over a disputed sea border on Monday, but Chinese analysts dismissed the possibility of a major military confrontation.
More than 100 shells out of about 500 fired landed in the Republic of Korea's waters as part of a drill, prompting ROK marines to fire more than 300 rounds into the Democratic People's Republic of Korea's waters, defence officials said in Seoul.
DPRK fires 30 short-range rockets
The DPRK had said it intended to conduct the exercise in response to United Nations' condemnation of last week's missile launches by Pyongyang and against "threatening" military drills in the ROK by US forces.
Pyongyang also accused Seoul of "gangsterlike" behaviour at the weekend, following the "abduction" of one of its fishing boats, and threatened to retaliate. The ROK said it sent the boat back after it drifted into its waters.
China expressed concern over increased tension on the Korean Peninsula.
"We urge all parties to maintain calm, exercise restraint and refrain from acts going against peace and stability on the peninsula," Foreign Ministry spokesman Hong Lei said at a daily news briefing.
"The current situation on the peninsula is quite vulnerable, and safeguarding peace and stability conforms with the common interests of all parties," he said.
The DPRK had ensured maximum publicity for its live-fire drill by taking the unusual step of notifying the ROK beforehand and issuing a no-sail, no-fly advisory.
As a precaution, border island residents were evacuated as ROK fighter jets took to the skies.
Residents of Baengnyeong Island, one of the remote islands near the firing area, were moved to bomb shelters, a government official said. The evacuation order was lifted an hour after the DPRK drill ended.
Wang Junsheng, a researcher of East Asian studies at the Chinese Academy of Social Sciences, said Pyongyang's move may have been in response to several events.
The DPRK has staged a series of missile launches, mostly short range, in response to what it sees as a threat posed by annual US-ROK military drills. The current drill, Foal Eagle, ends on April 18.
"The shelling is an expression of the DPRK's dissatisfaction," Wang said. But Pyongyang's action has been rather restrained this time, he added.
Jia Xiudong, a senior researcher of international affairs at the China Institute of International Studies, said, "Pyongyang knows tension will not help it to break isolation by the international community."
At the same time, the ROK does not want the situation to get out of control, because increased tension is contrary to the peaceful progress initiative of ROK President Park Geun-hye, Jia said.
The White House said the DPRK's actions are dangerous and provocative and will further aggravate tensions in the region.
White House spokesman Jonathan Lalley said the US remains steadfast in its commitment to the defence of its allies and is working in close coordination with the ROK and Japan.
ROK Defence Ministry spokesman Kim Min-seok said the DPRK's action "is a planned provocation and an attempt to test our military's determination to defend the Northern Limit Line and to get an upper hand in South-North relations".
The Northern Limit Line, a maritime border that wraps itself round part of the DPRK's coastline, has been the scene of frequent clashes.
In 2010, four people were killed when the DPRK shelled the ROK island of Yeonpyeong. Earlier that year, a ROK naval vessel was sunk close to the line by what some countries said was a DPRK torpedo, although Pyongyang denies involvement.
Daniel Pinkston of the International Crisis Group said, "It's up to the two militaries either to recognise or reject their own claimed line and challenge the other's. This goes back and forth, so this is probably another episode."
The Northern Limit Line was drawn up at the end of the 1950-53 Korean War and the DPRK does not recognise it. The two sides are still technically at war, as the conflict ended in a truce, not a treaty.
Financial markets in the ROK were unmoved by the latest developments. The KOSPI index moved higher after early losses to finish the day up by 0.2 per cent as the won extended gains to end onshore trade up by 0.4 per cent against the US dollar.