North Korea's state media say high-level talks with South Korea are close to collapsing after the two countries traded small arms fire.
Pyongyang on Friday opened fire on balloons filled with anti-North Korea propaganda sent across the border by South Korean activists.
When some of the rounds fell on the southern side of the border, Seoul returned fire. No injuries or damage were reported on either side.
The North's state-run Uriminzokkiri news website said the South's "irresponsible and provocative" move has driven inter-Korean ties "into a catastrophe."
In a report Saturday, the site said a planned high-level meeting between North and South Korean officials is now "all but scrapped."
The two foes last week agreed to the talks after a senior North Korean delegation made a surprise visit to South Korea for the Asian Games.
The planned negotiations raised hopes of at least temporarily improved relations between the two neighbors, which are still technically at war following their 1950s conflict.
Earlier this week, Pyongyang had warned of an “uncontrollable catastrophe” in inter-Korean relations unless the South Korean government stopped the launch of the balloons.
A group of Seoul-based activists, made up mostly of defectors from the North, sent anti-Pyongyang leaflets to the North on Friday, the 69th anniversary of the founding of the ruling Workers’ Party.
North Korea has complained about similar leaflet drops in the past, including one last month. But, the government in Seoul has not taken action so far to stop the activists.