Troops in the south of the country were on maximum alert as they hunted for possible communist spies who may have come ashore while the Air Force and Navy searched for bodies and wreckage from the semi-submersible vessel.

The shootout erupted in the early hours as South Korean military and Coast Guard vessels chased the craft, carrying several commandos, in a 100 km high-seas pursuit, the joint chiefs of staff said.

``A North Korean semi-submersible tried to infiltrate South Korea via our southern coast before they were spotted by the Coast Guard late last night,'' a spokesman said.

``The submersible was warned to stop as we pursued it, but ignored the warnings and kept fleeing, so we fired warning shots towards it,'' Colonel Park In-Yong said of the dramatic seven-hour pursuit.

``The North Koreansoldiers however opened fire on our side and finally our Navy ship hit the vessel with shell fire and it went down. We are now trying to recover buoyant materials from that area,'' he said.

The vessel sank at 3.20 am IST on Friday and one body of a suspected North Korean frogman armed with a grenade was recovered near the sunken wreck, another official said. The remaining crew is also feared dead.

A South Korean naval boat was slightly damaged in the firefight, the first between South Korea and North Korean troops in two years, but no South Koreans were hurt in the dramatic overnight chase.

The joint chiefs said the submersible's mission was likely aimed at landing armed North Korean agents in the south, officials said, explaining the alert in the force across the region.

The country's National Security Council held an urgent meeting in Seoul to discuss the incident but vowed to push ahead with trying to prise North Korea out of its isolation through economic exchanges, rather thanconfrontation.

The 10 tonne semi-submersible was typical of those used by North Korea for covert operations here. Commandoes cling onto the motorised vehicle which drags them just under the surface of water.

Military officials said the drama began when the vehicle was spotted by Coast Guards using night vision equipment about two kilometres off the coast of the southern port of Yosu at 6.30 pm IST yesterday.

The military scrambled an armada of P3-C anti-submarine planes, helicopters and naval patrol boats to track down the vessel, chasing it for about 100 kilometres into the open sea before the shootout broke out.