North Korea says it will not retaliate despite “reckless provocations” from the South, which held live-fire drills on the flashpoint island of Yeonpyeong.
The North shelled the island last month after similar drills and had threatened more retaliation this time.
But state media quoted the army as saying it was “not worth reacting”.
UN Security Council talks ended without a deal on the weekend, reportedly after China refused to agree to a statement critical of its ally, the North.
The South’s government has been under huge domestic pressure to take a tough stance towards Pyongyang, in the wake of the 23 November shelling of Yeonpyeong, which killed four people.
‘Make dialogue, not war’
The South ordered residents of Yeonpyeong and several other islands to take cover in air-raid shelters early on Monday.
Witnesses said the ground shook from the force of the artillery barrages during 90 minutes of firing.
South Koreans feared a military response from the North, but state news agency KCNA reported that the military was not planning any retaliation.
“The revolutionary armed forces of the DPRK [North Korea] did not feel any need to retaliate against every despicable military provocation,” KCNA quoted the the army’s Supreme Command as saying.
“The world should properly know who is the true champion of peace and who is the real provocateur of a war.”
South Korean military spokesman Lee Bung-woo confirmed that no fire had come from the North’s side.
“During the exercise, the North Korean military strengthened vigilance and maintained preparedness, but did not make any additional provocations,” he said, according to South Korean news agency Yonhap.
“Our military will continue to keep firm military preparedness to defend the north-western islands and safeguard our sovereignty.”
After the military drill, China urged both sides to avoid armed confrontation.
“Whatever the differences and disputes relevant parties may have, they can only be addressed through dialogue and negotiation rather than by conflict or war,” said foreign ministry official Cui Tiankai.
Russia also renewed its calls for both sides to show restraint.
The US has backed the South’s right to carry out the exercises, and a small contingent of American personnel was helping with the drills.
Southern officials have insisted that the artillery guns on Yeonpyeong were aimed south-west, away from North Korea.
But the North claims that any ammunition fired inevitably lands in its territorial waters.
The North’s retaliation last month was the first time it had shelled civilian areas since the 1950-53 Korean War.
Yeonpyeong is close to the two countries’ sea border, the Northern Limit Line, which was drawn up at the end of the war, but is disputed by the North.
Meanwhile, veteran US politician Bill Richardson is in North Korea on an unofficial visit, attempting to ease tensions.
Mr Richardson, governor of New Mexico, told CNN that he had held “very tough” talks with Maj Gen Pak Rim-su, who leads North Korean forces along the border with the South. He said he was confident progress had been made.
CNN reported that northern officials told Mr Richardson they would allow UN nuclear inspectors back into the country, but there has been no official comment.
The BBC’s Jane O’Brien in Washington says the US is is walking a diplomatic tightrope, as there are 28,000 American troops stationed in the South, and they would almost certainly be drawn in if hostilities erupt
The island is normally home to some 1,300 residents along with hundreds of marines, but most civilians have fled to the mainland, leaving only about 100 remaining, Yonhap said.