The US secretary of state says her country is working hard to avoid an escalation after a report blamed North Korea for the sinking of a South Korean warship.
After talks in China, Hillary Clinton urged countries in the region to contain "the highly precarious situation created by North Korea".
Earlier, South Korean President Lee Myung-bak froze trade with Pyongyang, vowing to punish those who carried out the attack, which killed 46 sailors.
Meanwhile, the Pentagon announced the US was planning to start joint anti-submarine and other naval exercises with South Korea "in the near future".
Pentagon spokesman Bryan Whitman said the decision to start the exercises was "a result of the findings of this recent incident".
North Korea has said it would retaliate for any action taken against it.
The country's main newspaper called the investigation an "intolerable, grave provocation".
President Lee addressed the nation on television to announce Seoul would no longer tolerate "any provocative act by the North and will maintain a principle of proactive deterrence".
The US administration endorsed the move.
"US support for South Korea's defence is unequivocal, and the president has directed his military commanders to co-ordinate closely with their Republic of Korea counterparts to ensure readiness and to deter future aggression," a White House statement said.
South Korea says it will refer the North to the UN Security Council in response to the sinking of the Cheonan in March.
UN Secretary General Ban Ki-moon said he expected serious measures to be taken by the Security Council once Seoul brought the matter to its attention.
He said the evidence that North Korea was responsible for the torpedo attack was "overwhelming and deeply troubling", and urged prompt action to revive six-party peace talks.
China - North Korea's closest trading partner and a permanent member of the Security Council - has urged "calm and restraint". Japan said it was contemplating its own sanctions on Pyongyang.
The North depends on South Korea and China for up to 80% of its trade and 35% of its GDP. In 2009, inter-Korean trade stood at $1.68bn (£1.11bn) - 13% of the North's GDP.
The measures announced by South Korea included:
- Stopping inter-Korean trade
- Banning North Korean ships from using South Korean waterways or shortcuts
- Resuming "psychological warfare"
- Referring the case to the UN
The BBC's John Sudworth in Seoul says the measures are about as tough a response as the South could take, short of military action.
But South Korean Unification Minister Hyun In-taek said Seoul would still maintain the joint economic project in Kaesong, even though it would "respond with resolute measures" to possible attempts by the North to undermine the safety of its workers.
The measures came less than a week after experts from the US, the UK, Australia and Sweden said in a report that a torpedo had hit the Cheonan.
They reported that parts of the torpedo retrieved from the sea floor had lettering that matched a North Korean design.
North Korea denies any involvement in the sinking, calling the investigation results a "fabrication" and threatening war if sanctions are imposed.
The South's new measures included resuming "psychological warfare" against North Korea, which was stopped in 2004. The resumption prompted an angry response from Pyongyang.
"If [South Korea] sets up new tools for psychological warfare such as loudspeakers and leaves slogans for psychological warfare intact, ignoring our demands, we will directly aim and open fire to destroy them," a statement by the military said on Monday.
"More powerful physical strikes will be taken to eradicate the root of provocation if [South Korea] challenges to our fair response," said a commander, according to official news agency KCNA.