YEONPYEONG, South Korea- North Korea test-fired another short-range missile off its east coast on Friday and said it would take more self-defense measures if the U.N. Security Council punished it for this week's nuclear test.

South Korea said an increasingly aggressive North may be preparing fresh moves after Chinese fishing boats were spotted leaving a disputed sea border on the west coast.

South Korea and the United States have raised the military alert level in the region after the isolated state followed Monday's nuclear test with missile launches and a threat of war.

Regional powers are waiting to see what the North might do next. Many speculate it may opt for a naval skirmish in disputed waters off the west coast, which should be getting crowded as the lucrative crab fishing season starts.

In New York, the United States and Japan circulated a draft U.N. Security Council resolution to key members, condemning Pyongyang's second nuclear test and demanding strict enforcement of sanctions after the North's first atomic test in October 2006.

North Korea, in its first response to threatened sanctions, said it would take self-defense measures if it was punished.

It gave no details other than to say such a move would nullify the armistice that ended the 1950-53 Korean War. It has previously said that truce was already dead.

Yonhap quoted an unnamed government source as saying the North fired the short-range rocket from its Musudan-ri missile base around dusk, making it the fifth to be launched since the nuclear test. Most of the missiles are believed to have a range of around 130 km (80 miles).

The escalating tension had little further impact on financial markets in Seoul, hit earlier in the week by the nuclear test. Traders said while North Korea's belligerent tone was unsettling, it was, without military confrontation, not enough yet to significantly frighten off investors.

The two Koreas have fought two deadly naval skirmishes on their disputed maritime border in the past 10 years and the North has warned another could happen soon.

Our forces are watching these movements (by Chinese fishing boats) with the view that they could be signs that indicate the possibility of North Korea's aggression, Defense Ministry spokesman Won tae-jae said.

The 1999 and 2002 clashes were in June, the peak of the three-month crab season when fishing fleets jockey for the best spots near the contested maritime border.

Now that there's talk of ... an all-out war, we fishermen are worried, said 48-year-old Yeonpyeong island fisherman Kim Jae-sik. Nowadays when we go out, we know we are facing dangers.

The island is off the west coast in waters the North claims but the South has occupied since the Korean War.

ALERT LEVEL RAISED

The joint command for the 28,500 U.S. troops supporting South Korea's 670,000 soldiers has raised its alert a notch to signify a serious threat from North Korea. That is the highest threat level since the North's other nuclear test in 2006.

It calls for stepped up surveillance but not an increase in maneuvers by troops who face a million-strong North Korean military, most massed near the heavily fortified border.

North Korea's increasingly angry provocations unnerve other countries, but many analysts said a major aim is domestic -- strengthening leader Kim Jong-il's steely grip on power.

They say that after a reported stroke last year, the 67-year-old may well feel a need to use his powers more extravagantly to help prepare for a successor -- possibly one of his sons -- to take over the world's first communist dynasty.

Some also point out Kim has long used the threat of invasion by a hostile United States to justify spending the impoverished state's meager resources on a military that keeps him in power, rather than on the rest of the population of 23 million.

That situation means his government will not give up the goal of owning nuclear weapons, analysts say.

The more North Korea resembles a third-rate South Korea on the economic front, the more the Kim Jong-il regime must justify its existence through a combination of radical nationalist rhetoric and victories on the military and nuclear front, Brian Myers, an expert on the North's ideology at the South's Dongseo University, wrote in an International Herald Tribune article.

In a draft resolution obtained by Reuters, the Security Council condemns in the strongest terms the North's test.

It calls for enforcement of sanctions imposed after Pyongyang's 2006 nuclear test, which included a limited trade and arms embargo that had been widely ignored. A vote could come as early as next week, diplomats said.

A U.S. State Department delegation, including special envoy on North Korea Stephen Bosworth, was planning to visit Japan, China, Russia and South Korea. All are members of now frozen six-party negotiations to persuade the North to give up efforts to build a nuclear arsenal.

But it may be difficult to win support from China, North Korea's dominant trading partner and the nearest it has to a major ally, for much tougher sanctions.

Japan South Korea