China should remain neutral if North Korea launches an attack that threatens the United States, a Chinese state-run newspaper said on Friday, sounding a warning for Pyongyang over its plans to fire missiles near the US Pacific territory of Guam.

The comments from the influential Global Times came after US President Donald Trump stepped up his rhetoric against North Korea again on Thursday, saying his earlier threat to unleash "fire and fury" on Pyongyang if it launched an attack may not have been tough enough.

China, North Korea's most important ally and trading partner, has reiterated calls for calm during the current crisis. Beijing has expressed frustration with both Pyongyang's repeated nuclear and missile tests and with behaviour from South Korea and the United States, such as military drills, that it sees as escalating tensions.

"China should also make clear that if North Korea launches missiles that threaten US soil first and the US retaliates, China will stay neutral," the Global Times, which is widely read but does not represent government policy, said in an editorial.

"If the US and South Korea carry out strikes and try to overthrow the North Korean regime and change the political pattern of the Korean Peninsula, China will prevent them from doing so," it said.

North Korea's state-run KCNA news agency said on Thursday its army would complete plans in mid-August to fire four intermediate-range missiles over Japan to land near Guam.

Trump said North Korean leader Kim Jong-un was not going to get away with his "horrific" comments and disrespecting America.

"Let's see what he does with Guam. He does something in Guam, it will be an event the likes of which nobody's seen before, what will happen in North Korea," Trump told reporters in New Jersey, without offering specifics.

Shortly after Trump spoke, US Defense Secretary James Mattis told reporters the United States still preferred a diplomatic approach to the North Korean threat and a war would be "catastrophic".

Asked if the United States was ready if North Korea made a hostile act, he said: "We are ready."

Tension in the region has risen since the reclusive North, which staged two nuclear bomb tests last year and launched two intercontinental ballistic missile tests in July in defiance of world powers. Trump has said he would not allow Pyongyang to develop a nuclear weapon capable of hitting the United States.

On Thursday, US and Japanese troops began an 18-day live fire exercise on the northern Japanese island of Hokkaido, which was to include rocket artillery drills and involve 3,500 troops.

The Northern Viper drills are one of the scheduled exercises that Japan's Self Defence Forces conducts regularly with their US counterparts and are not a response to the latest tensions.

South Korean and US troops are also gearing up for an annual joint drill from 21 August, called the Ulchi Freedom Guardian, where up to 30,000 US troops will take part.

South Korean President Moon Jae-in is expected to deliver a speech next week to mark Liberation Day, when the Korean peninsula secured freedom from the rule of Japan. Moon is likely to highlight his policy on North Korea on the holiday, the only one the two Koreas share.

The United States and South Korea remain technically still at war with North Korea after the 1950-53 Korean conflict ended with a truce, not a peace treaty.

The tensions between North Korea and the United States spurred a broad stock market sell-off. The US benchmark S&P 500 stock index closed down 1.4 per cent, marking the biggest one-day drop since May. Asian shares fell on Friday with South Korea's KOSPI down 1.9 per cent.

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"This situation is beginning to develop into this generation's Cuban Missile crisis moment, with recent leaked intelligence reports alleging that North Korea now has miniaturised its nuclear warheads, which extends the range of its missiles, and potentially brings US targets into reach," ING's chief Asia economist Robert Carnell said in a research note.

"While the US President insists on ramping up the war of words, there is a decreasing chance of any diplomatic solution," he said.

Former defence officials and experts say any new military conflict with North Korea would likely escalate quickly to the use of nuclear weapons, bringing catastrophic casualties not seen since World War Two and an untold economic impact worldwide.

Guam, a tropical island more than 3,000 km (2,000 miles) to the southeast of North Korea, is home to about 163,000 people. It has a strategically located US air base, a Navy installation that includes a submarine squadron and a Coast Guard group, and roughly 6,000 US military personnel.

Peter Toves, 47, a Guam native who rents out kayaks and jetskis on a private beach, said he feels safe, but threats so specific by Kim were unsettling.

"We're just gonna sit down and barbecue here and have fun. There's nothing we can do, just wait," he said.