South Korea's troops were on high alert Wednesday as their government exchanged threats with rival North Korea following a frightening military skirmish that ratcheted tensions on the peninsula to new extremes.

President Barack Obama reaffirmed Washington's pledges to protect ally Seoul after the North shelled a South Korean island near their disputed border, killing at least two marines and wounding civilians in what U.N. Secretary-General Ban Ki-moon called one of the "gravest incidents" since the end of the Korean War.

In a conversation with South Korean President Lee Myung-bak, Obama said the United States stands "shoulder to shoulder" with Seoul. The White House said the presidents agreed to hold combined military exercises and enhanced training in the days ahead.

South Korea vowed massive retaliation should North Korea attack again, and said Wednesday it would strengthen military forces in the disputed western waters near the island of Yeonpyeong and halt aid to the communist North. The North warned of more military strikes if the South encroaches on the maritime border by "even 0.001 millimeter."