North Korea has warned of a "merciless" response if its territorial boundaries are violated during large-scale military drills involving US and South Korean forces.

Pyongyang on Thursday reacted to the start of the annual war games with its typical fiery rhetoric, but recent missile and nuclear tests by the North give the usual threats an added weight.

The military drills between Seoul and Washington always rile North Korea, which calls the exercises a rehearsal for an invasion. This year's manoeuvres began on Wednesday.

The North will "mercilessly foil the nuclear war racket of the aggressors with its treasured nuclear sword", an unidentified spokesman for the General Staff of the Korean People's Army (KPA) was quoted as saying by the official Korean Central News Agency.

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He said the North's reaction will be the toughest ever but didn't elaborate.

"Should the US imperialists and the South Korean puppet forces fire even a single shell into the waters where the sovereignty of our Republic is exercised, the KPA will immediately launch its merciless military counter-actions," the statement said.

There is renewed worry in Seoul and Washington because North Korea test-launched a new intermediate-range missile in February. It also conducted two nuclear tests last year.

South Korea's military said on Thursday that it will "resolutely" punish North Korea if provoked.

The ongoing drills are field training that will run until late April. As well, different training involving computer-simulated war games will start in the coming weeks.

The United States has 28,500 troops stationed in South Korea as a deterrent against a potential aggression from North Korea. The Korean peninsula remains in a technical state of war because the 1950-53 Korean War ended with an armistice, not a peace treaty.

The US plans to send the USS Carl Vinson aircraft carrier with F-35B and Osprey aircraft, according to a US Forces Korea spokesman. The B-1B and B-52 bombers could also join the drill, according to South Korea's Yonhap news agency.

Some 3,600 US soldiers are expected to join the Foal Eagle exercise this year.

South Korea and the United States also agreed to strengthen cooperation on financial sanctions against North Korea in response to the recent missile test.

US Treasury Secretary Steven Mnuchin and South Korea Finance Minister Yoo Il-ho expressed "great concern" over North Korea's February 12 missile launch and promised to follow through with sanctions, said in a statement on Thursday after a call between the pair.

On February 12, North Korea launched a Pukguksong-2 ballistic missile near the western city of Kusong. The missile flew east about 500km before falling into the Sea of Japan (East Sea), according to South Korea's defence ministry.