Published: May 25, 2010 4:43 PM EDT
Updated: May 25, 2010 1:43 PM EDT

SEOUL, South Korea (AP) - North Korea declared Tuesday that it would sever all communication and relations with Seoul as punishment for blaming it for the sinking of a South Korean warship.

The North also announced it would expel all South Koreans working at a joint factory park in the northern border town of Kaesong, the official Korean Central News Agency said in a dispatch monitored in Seoul late Tuesday.

Tensions were rising on the divided Korean peninsula in the wake of an investigation report blaming North Korea for a torpedo attack that sank the Cheonan warship on March 26, killing 46 South Korean sailors.

South Korea's military restarted psychological warfare operations - including blaring radio broadcasts into the North and placing loudspeakers at the border to blast out propaganda - to punish the North for the provocation.

The South is also slashing trade and denying permission to North Korean cargo ships to pass through South Korean waters. North Korea struck back by declaring it would cut all ties with the South until President Lee Myung-bak leaves office. South Korean ships and airliners will be banned from passing through its territory and the North will resume its own psychological warfare, KCNA said.

Earlier, one Seoul-based monitoring agency reported that North Korea's leader ordered its 1.2 million-member military to get ready for combat. South Korean officials could not immediately confirm the report.

The North flatly denies involvement in the sinking of the Cheonan, one of the South's worst military disasters since the 1950-53 Korean War ended with an armistice, and has warned that retaliation would mean war. It has threatened to destroy any propaganda facilities installed at the heavily militarized border. A team of international investigators, however, concluded last week that a torpedo from a North Korean submarine tore apart the Cheonan.

North Korea is already subject to various U.N.-backed sanctions following earlier nuclear and missile tests, and the steps announced by Seoul were seen as among the strongest it could take short of military action.

The U.S. has thrown its full support behind South Korea's moves and they 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. The U.S. has 28,500 troops in South Korea.

South Korea also wants to bring North Korea before the U.N. Security Council over the sinking. U.N. Secretary-General Ban Ki-moon said Monday he expects the council to take action against North Korea, but China - North Korea's main ally and a veto-wielding council member - has so far done little but urge calm on all sides.

In Beijing, U.S. Secretary of State Hillary Rodham Clinton said she had "very productive and very detailed" discussions with Chinese officials but could not say if any progress had been made in convincing the Chinese to back U.N. action.

"No one is more concerned about peace and stability in this region as the Chinese," she told reporters. "We know this is a shared responsibility, and in the days ahead we will work with the international community and our Chinese colleagues to fashion an effective, appropriate response."

Chinese State Counselor Dai Bingguo, speaking at a news conference with Clinton, called for "relevant parties" to "calmly and properly handle the issue and avoid escalation of tension." Russian President Dmitry Medvedev talked with Lee on Tuesday and said he "understands well" about South Korea's moves and will try to give an "appropriate signal" to North Korea over the sinking, according to Lee's office.

As part of its propaganda offensive, South Korea's military resumed radio broadcasts airing Western music, news and comparisons between the South and North Korean political and economic situation late Monday, according to the Joint Chiefs of Staff. The military also planned to launch propaganda leaflets by balloon and other methods on Tuesday night to inform North Koreans about the ship sinking.

In coming weeks, South Korea also will install dozens of loudspeakers and towering electronic billboards along the heavily armed land border to send messages urging communist soldiers to defect to the South.

The North warned Monday it would fire at any propaganda facilities installed in the Demilitarized Zone. On Tuesday, North Korean state media cited the powerful National Defense Commission as saying the North's soldiers and reservists were bracing to launch a "sacred war" against South Korea.

North Korea often issues fiery rhetoric and regularly vows to wage war against South Korea and the U.S. It put its army on high alert following a November sea battle with South Korea near where the Cheonan went down in March.

The Koreas also fought bloody maritime skirmishes in the disputed area in 1999 and 2002. Seoul-based North Korea Intellectuals Solidarity said Tuesday that North Korean leader Kim Jong Il last week ordered his military to get ready for combat.

The group, citing unidentified sources in North Korea, said the order was read by Gen. O Kuk Ryol, a Kim confidant, and broadcast on speakers installed in each house and at major public sites throughout the country last Thursday, hours after the multinational report blaming North Korea for the sinking was issued in Seoul.

The South Korean military said they had no indication of unusual activity by North Korea's military. On Tuesday, the presidential Blue House said officials were reviewing whether South Korea should resume calling North Korea its "main enemy" in formal defense documents for the first time in six years. In downtown Seoul, about 30 conservative activists burned North Korean flags and ripped up photos of Kim Jong Il.