North Korea warned South Korea on Sunday of "unexpected consequences" if Seoul displays Christmas lights near the tense border, and vowed to retaliate for what it called propaganda attempts.

The South's defence ministry said earlier it was considering a request by a Seoul church group to put up Christmas lights on a steel tower atop a military-controlled hill near the border.

The North's official website-- Uriminzokkiri-- called the plan "a mean attempt for psychological warfare" against the communist state and threatened to retaliate immediately when the lights are switched on.

The 155-metre (511 feet) hill in the South, about three kilometres (two miles) from the border, is within range of North Korean gunfire.

"The enemy warmongers... should be aware that they should be held responsible entirely for any unexpected consequences that may be caused by their scheme," it said.

"This issue... is not something to be ignored quietly," it said.

The two Koreas in 2004 reached a deal to halt official-level cross-border propaganda and the South stopped its annual Christmas illumination ceremony.

But Seoul resumed the ceremony last December amid high military tensions with Pyongyang.

Cross-border ties have been icy since the South accused the North of torpedoing its warship with the loss of 46 lives in March 2010.

Pyongyang angrily denied involvement but went on to shell a border island in November 2010 that left four South Koreans dead and sparked fears of war.

The North had accused the South of displaying Christmas lights to spread Christianity among its people and soldiers. The North's constitution provides for religious freedom, but the US State Department says this does not in practice exist.