A wary South Korea stayed on guard against North Korea Tuesday, with jet fighters and warships deployed, a day after the communist state backed off from threats of attack over a live-fire exercise.

Washington and Seoul expressed scepticism at another reported concession by Pyongyang -- an agreement to reopen its nuclear sites to UN inspectors.

Hours after the South defied North Korea's threats and staged Monday's artillery exercise near the disputed sea border, the North announced it "did not feel any need to retaliate against every despicable military provocation".

The comments eased fears of war on the peninsula, following almost a month of high tensions.

The North used a similar artillery drill on Yeonpyeong island on November 23 as a pretext to bombard the island, killing four people including civilians and damaging dozens of homes.

Pyongyang had threatened an even deadlier attack if Monday's drill went ahead, only to change tack.

Its ally China had earlier blocked efforts at the UN Security Council to agree a statement on the crisis which would have condemned the North for its November attack.

The South's military, accused of responding feebly to last month's attack, said it would maintain its guard.

"This is the most serious crisis in our national defence since the (1950-53) Korean War," Defence Minister Kim Kwan-Jin told parliament Tuesday.

"We are maintaining thorough military readiness at sea including Yeonpyeong island against possible provocations by the North," said Kim, who has promised strong retaliation using air power for any future strike.

Jet fighters were still on patrol Tuesday, he said, while his ministry said warships are on standby in the Yellow Sea.

The North's softer stance coincided with apparent concessions on its nuclear programmes to visiting US politician Bill Richardson, a veteran troubleshooter with the North.

The New Mexico governor said it had agreed to readmit UN nuclear inspectors and to negotiate the sale of fuel rods -- capable of producing bomb-making plutonium -- to a third party, possibly South Korea.

The North, Richardson said, had also agreed to consider a military commission grouping the two Koreas and the United States to prevent conflicts in disputed sea areas, and to reconnect a crisis hotline.

North Korea in April 2009 pulled out of six-nation nuclear disarmament talks and ordered out UN nuclear inspectors. It staged its second nuclear test a month later.

Its disclosure last month of an advanced uranium enrichment plant -- purportedly to serve a peaceful nuclear power programme -- heightened regional security fears.

Richardson told reporters on arrival in Beijing the North Koreans would allow International Atomic Energy Agency (IAEA) personnel to check that they are not processing highly enriched uranium "and are proceeding with peaceful purposes".

The North, he said, had moved in the right direction towards easing tensions but now needed to back that up with "deeds, not words".

The United States and South Korea expressed scepticism.

"North Korea talks a great game. They always do. The real issue is what will they do," said US State Department spokesman Philip Crowley Monday.

"If they are agreeable to returning IAEA inspectors to their country, they have to tell the IAEA that.

"We've seen a string of broken promises by North Korea going back many, many years."

The South's Foreign Minister Kim Sung-Hwan also played down the agreement with Richardson, saying it did not reflect Washington's official position.

"I guess that a nuclear agreement between North Korea and Governor Richardson might have been used by North Korea for its propaganda," Kim told parliament.

"Governor Richardson was not in a position to reach agreement on the nuclear issue."

In a sign of the high tensions, South Korean marines were posted Tuesday to guard a Christmas tree.

A South Korean church switched on lights in the shape of a tree near the tense land border -- the first such display for seven years.

Since 2003 the lights have been banned under an agreement between the two Koreas to halt their cross-border propaganda war. There were fears the North might fire on the tree as a propaganda symbol.

A senior Seoul government official said the North may not have attacked on Monday because the South's military was fully prepared.

"North Korea has already implied it might be tempted to make another strike or provocation -- we have to watch."