U.N. Secretary-General Ban Ki-moon said he expects the Security Council to take action against North Korea, calling the evidence that the North was responsible "overwhelming and deeply troubling."
The U.S. and South Korea are planning two major military exercises off the Korean Peninsula in a display of force intended "to deter future aggression" by North Korea, the White House said.
President Lee Myung-bak laid out the economic and diplomatic measures aimed at striking back at the impoverished North, including halting some trade and taking the regime before the Security Council.
International investigators concluded last week that a torpedo from a North Korean submarine tore apart the warship Cheonan on March 26 in the Yellow Sea off the west coast in one of South Korea's worst military disasters since the 1950-53 Korean War.
Lee said it was another example of "incessant" provocation by North Korea, including a 1983 attack in Myanmar on a South Korean presidential delegation that killed 21 people, and the bombing of an airliner in 1987 that claimed 115 lives.
"We have always tolerated North Korea's brutality, time and again. We did so because we have always had a genuine longing for peace on the Korean peninsula," Lee said in a solemn speech at the War Memorial.
"But now things are different. North Korea will pay a price corresponding to its provocative acts," he said, calling it a "critical turning point" on the tense Korean peninsula, still technically in a state of war because the fighting ended in a truce, not a peace treaty.
Big trading partner
The truce prohibits South Korea from waging a unilateral military attack, so Seoul sought to strike at Pyongyang's faltering economy.
Despite their rivalry, South Korea has been Pyongyang's No. 2 trading partner with $1.68 billion in trade in 2009, or about 33 percent of the North's total, according to the Korea Trade-Investment Promotion Agency. China is North Korea's biggest trading partner, with $2.68 billion in commerce last year, the agency said.
South Korea buys shellfish, seafood products, zinc, sand, coal and other products from the North, but those imports will be halted, and North Korean cargo ships will be denied permission to pass through South Korean waters, Unification Minister Hyun In-taek said.
Those measures will cost North Korea about $200 million a year, said Lim Eul-chul, a North Korea expert at South Korea's Kyungnam University.
But the biggest source of trade — a joint factory park in the North Korean border town of Kaesong where 110 South Korean firms employ about 42,000 North Koreans — will stay open, Hyun said.
The Obama administration endorsed Lee's demand that "North Korea immediately apologize and punish those responsible for the attack, and, most importantly, stop its belligerent and threatening behavior." Seoul can continue to count on the full backing of the United States, it said.
"U.S. support for South Korea's defense is unequivocal, and the president has directed his military commanders to coordinate closely with their Republic of Korea counterparts to ensure readiness and to deter future aggression," the White House said.
Pentagon spokesman Bryan Whitman did not give a date for the exercises but said they will be in the "near future."
The U.S. has 28,500 troops in South Korea — a major sore point for the North — as well as 47,000 troops in Japan.
U.S. Secretary of State Hillary Rodham Clinton was in Beijing conferring with China on a coordinated response. She would not say whether that might include new international sanctions against the North.
"We are working hard to avoid an escalation of belligerence and provocation," Clinton said. "This is a highly precarious situation that the North Koreans have caused in the region."
North Korea has steadfastly denied any role in the ship's sinking. On May 20, naval spokesman Col. Pak In Ho told broadcaster APTN in Pyongyang that any punishment would mean "all-out war."
On Monday, the powerful National Defense Commission criticized Lee's speech as a "clumsy farce," North Korea's official Korean Central News Agency said.
At the U.N., Ban — a former South Korean foreign minister — said he shares in the international outrage over the sinking of the Cheonan.
"The evidence laid out in the joint international investigation report is overwhelming and deeply troubling. I fully share the widespread condemnation of the incident," Ban told reporters. "I am confident that the council ... will take measures appropriate to the gravity of the situation."
China, Japan, Russia, South Korea and the U.S. have been trying to persuade North Korea to give up its nuclear weapons in talks that Pyongyang quit last year, and Ban said it was "particularly deplorable" the attack occurred while those negotiations are stalled.
Pyongyang disputes the maritime border drawn by U.N. forces at the close of the war, and the Koreas have fought three skirmishes there, most recently in November.
South Korea's military will resume blaring anti-North Korean propaganda back over the border, a sensitive practice suspended in 2004 amid warming ties.
Japanese Prime Minister Yukio Hatoyama suggested the heightened tension between the Koreas helped shape his decision to break a campaign promise and keep a key U.S. Marine base in Okinawa, where about half the U.S. troops are stationed.