The warning came after President Lee Myung-bak held a meeting with top security ministers.
"If North Korea misjudges the situation and pushes ahead with a provocation again, it will cause very grave consequences," presidential spokesman Park Jeong-ha said. "The government urges North Korea to immediately halt all provocative words and actions and comply with international obligations."
The spokesman did not elaborate on the "grave consequences" mentioned at the closed door gathering.
But a senior government official later spoke to reporters and suggested that the North will face way tougher responses than the ones taken against the country in the past for banned nuclear tests and rocket launches.
"If (the North) carries out a nuclear test, it will be a big mistake. It will be unfortunate for North Korea's future," the official said on condition of anonymity for freer discussions. "This is the message we are sending to North Korea."
South Korea is discussing possible punitive measures with key partner nations, he said.
Lee also told Defense Minister Kim Kwan-jin to maintain strong military readiness, saying North Korea is "escalating military tensions on the Korean Peninsula while overtly threatening additional provocations, including a nuclear test," the spokesman said.
The defense ministry said it upgraded the readiness posture of its units by one notch to the second highest level and is currently utilizing all of its surveillance assets to monitor the North along the inter-Korean border and around the North's nuclear test site.
It said front-line forces along the demilitarized zone (DMZ) and the Northern Limit Line (NLL) have been ordered to be on guard against surprise attacks and to respond immediately if provoked. The DMZ and NLL are the land and sea demarcation lines between the two Koreas.
North Korea said last week it will conduct a nuclear test in protest after the U.N. Security Council adopted a resolution condemning its Dec. 12 long-range rocket launch. Officials in Seoul have said the North has completed all preparations and can detonate a nuclear device at any time.
Pyongyang claims the launch was part of a peaceful space program, but others denounced it as a disguised test of missile technology banned by the U.N. over concern that it can be used to develop ballistic missiles capable of carrying nuclear weapons.
"Common sense is to believe that North Korea will conduct a nuclear test," considering "domestic political demand" in North Korea and the pattern of behavior of the communist nation, the senior government official said.
The official said the North could see a nuclear test as a key tool to rally public and military support for leader Kim Jong-un and strengthen his authority amid various "domestic difficulties." He did not elaborate.
As South Korea assumes the rotating presidency at the U.N. Security Council in February, Seoul will be able to "set the agenda and convene meetings" at the global security body, the official said, adding that meetings can be called at any time in case of contingencies.
China considers a nuclear test a much more grave issue than missile tests, he said.
The official declined to comment on whether military actions are under consideration.