The South "is ready to engage in dialogue with the North anytime with an open mind"; Lee told a ceremony marking Independence Movement Day.

Cross-border tensions have been high for almost a year, after two deadly border incidents blamed by Seoul on Pyongyang.

On Monday US and South Korean troops launched war exercise that the North describes as a rehearsal for invasion. It has vowed to turn Seoul into a "sea of flames" in the event of any provocation.

Pyongyang's military has also threatened to open fire on a tourist site at Imjingak in the South, to halt future launches of propaganda leaflets across the heavily fortified border.

Lee, in a speech marking a 1919 campaign for independence against Japanese colonisers, said it was time to sweep away the legacy of the Cold War.

North Korea should join a new wave of peace and prosperity in Northeast Asia, he said.

"There is no reason for South Korea not to help our compatriots in the North when it is helping many other countries," Lee said.

"The North should step forward for serious dialogue and cooperation and refrain from developing nuclear weapons and missiles."

Lee also repeated calls for Pyongyang to take "responsible measures" on past provocations and follow the path of genuine reconciliation.

The South accuses the North of torpedoing a warship in March 2010 near the disputed Yellow Sea border with the loss of 46 lives, a charge it denies.

In November the North shelled a South Korean island near the border, killing two marines and two civilians and sparking outrage in the South.

Military talks intended to improve icy relations broke down last month over the South's demand that the North accept responsibility for the border incidents.

In a sign of continuing high tensions, Defence Minister Kim Kwan-Jin told troops on the border Tuesday to return fire immediately if they come under attack.

"During an operation, don't ask whether to shoot or not Report after taking, action first," he told troops of the First Army Corps, which oversees Imjingak.

The South's military came in for criticism for a perceived feeble response to last November's bombardment.

"Persistent discussions are needed to predict the types of provocation the North may mount," the minister said, urging commanders to use their imagination to forecast attacks.

He has proposed a unification tax to help meet the potentially huge cost of reunifying the South with its vastly poorer neighbour.-Reuters –AFP