A spokesman for Seoul's Joint Chiefs of Staff confirmed the start of Key Resolve, a computerised command post exercise which involves some 200,000 South Korean troops and 2,100 US soldiers including 800 from abroad.
The US military said in a statement that the North had been informed a month ago of the exercise dates and "the non-provocative nature of this training".
But Pyongyang's official news agency Monday described the drill scheduled to end March 9 as "an unpardonable infringement upon the sovereignty and dignity" of the North while it is still in mourning for late leader Kim Jong-Il.
"The army and people of the DPRK (North) are fully ready to fight a war with them," it said, warning Seoul and Washington of possible "catastrophic consequences".
The country's National Defence Commission on Saturday denounced the drill -- which will be followed by joint air, ground and naval field training exercise Foal Eagle from March 1 to April 30 -- as a "silent declaration of war".
"Our army and people will foil the moves of the group of traitors... for a new war with a sacred war of our own style," said the commission, the North's top ruling body.
The United States has based troops in the South since the 1950-53 war and the force currently numbers 28,500.
Pyongyang habitually denounces US annual exercises with South Korean forces while Seoul and Washington say the drills are merely defensive in nature.
The North has taken a hostile tone with the South since Kim Jong-Il died on December 17 and was replaced by his youngest son Jong-Un.
The new leader has been appointed armed forces chief and has visited several units in an apparent attempt to burnish his military credentials.
Kim inspected two army battalions at a base near the border with the South, state media said Sunday, adding that one of them had staged the shelling of a South Korean island in November 2010 which killed four people.
The leader ordered "a powerful retaliatory strike" if Monday's drills intrude on North Korean territory, it said.
The South's military has strengthened monitoring of the North's activities to guard against potential attacks, Yonhap news agency said. It said RF-4 and U-2 reconnaissance aircraft would be fully mobilised and F-15K fighter jets would be on emergency standby.
Artillery units near the land border would also stand ready to immediately hit back if attacked, it said.
The North's hostile comments came despite talks in Beijing last week with the United States, about a possible resumption of six-nation nuclear disarmament negotiations.
Baek Seung-Joo of the South's Korea Institute for Defense Analyses said the recent hostile rhetoric is aimed at cementing solidarity among the North's elite while Pyongyang tries to mend ties with Washington.
"Jong-Un needs to prevent any divisions in domestic politics while the North-US negotiations are underway," he told AFP.
Baek said the North might launch a sudden retaliation after the exercise is over, but any such attack may be delayed until after the South's parliamentary election on April 11.
"The North wouldn't want a situation in which angry South Koreans refuse to vote for opposition parties seeking reconciliation with Pyongyang. So they will carefully time any attack to prevent such setbacks," he said.
