A Mongolian-flagged cargo ship has sunk off the southern coast of South Korea, with most of the 16 North Korean crew members on board missing, and two bodies recovered.

Three people were rescued and identified themselves as part of a North Korean crew on the ship, South Korean coastguard officials said in a statement. A search effort was under way for the other 11 crew members still missing.

The rescued crew members were taken to a South Korean hospital for treatment, according to the coastguard.

The ship sent a distress signal early on Friday in waters about 130km south of the southern port city of Yeosu, the Associated Press news agency reported.

The Grand Fortune 1 was sailing from the Chongjin region on North Korea's east coast for a Chinese port carrying iron ore, said one official, who requested anonymity because he was not authorised to speak to the media.

The vessel sails regularly between North Korea and China, according to the Reuters news agency's ship tracking system.

The coastguard said it had mobilised 13 vessels and six aircraft to search for the ship and its crew members, despite high waves and strong winds hampering rescue operations.

It was not immediately known how South Korea would handle the rescued North Korean sailors, though Seoul usually repatriates North Korean sailors found drifting in South Korean waters if they want to return home.

On Monday, the rival Koreas fired hundreds of artillery shells into each other's waters in a flaring of hostilities.

The Korean Peninsula remains officially at war. The 1950-53 Korean War ended with an armistice, not a peace treaty.