North Korea fired 200 artillery shells at a South Korean island on Tuesday, setting buildings on fire and prompting return fire by the South, Seoul's military and media reports said.
Seoul's YTN television quoted a witness as saying 60 to 70 houses were on fire after the shelling.
The Yonhap news agency said one South Korean soldier had been killed and 14 wounded, four seriously, in the shelling, the biggest attack in years
The military confirmed the exchange of firing without providing more details. The South Korean government has called an emergency meeting of top security officials.
South Korean President Lee Myung-bak said he was trying to prevent the exchange of artillery fire from escalating into a greater conflict.
YTN television reported that Seoul had warned of a stronger response if the North continued with provocations.
YTN quoted a witness as saying a power failure was reported on Yeonpyeong Island near the border with the North after the firing, while pictures from the channel showed at least four plumes of smoke on the island.
Witnesses say residents were evacuated to bunkers.