SEOUL - North Korean leader Kim Jong-il has signaled the anointment of his youngest son as heir to the ruling family dynasty as the rival Koreas bolstered their militaries along a disputed sea border on Tuesday.

North Korea, whose increasingly military posturing after last week's nuclear test has prompted U.S. and South Korean forces to raise the alert level, is readying mid-range missiles for test launches, the South's Yonhap news agency reported a lawmaker as saying after a defense briefing.

The news rattled financial markets in Seoul, adding to worries over reports the impoverished state is preparing to test fire a long-range missile that could fly as far as U.S. territory. The main Seoul index closed slightly down.

Analysts believe that Kim Jong-il, whose power base stems from his support for the military, may be using the growing tension to give him greater leverage over power elites at home to nominate his own successor.

It has raised alarm in the region over how far iron ruler Kim, 67 and thought to have suffered a stroke last year, may be prepared to take his latest military grandstanding.

North Korea has asked the country's main bodies and its overseas missions to pledge loyalty to Kim's youngest son Kim Jong-un, various South Korean media outlets quoted informed sources as saying.

I was notified by the South Korean government of such moves and the loyalty pledges, Park Jie-won, a member of the opposition Democratic Party, said in a statement.

He declined to name his source but Yonhap said Park was among a group of lawmakers briefed on Monday night by the country's spy agency about the succession plans.

Kim Jong-un, born either in 1983 or early 1984, was educated in Switzerland and intelligence sources have said he appears to be the most capable of Kim's three known sons.

Even by North Korea's opaque standards, very little is known about the son, whose youth is a potential problem in a society that adheres closely to the importance of seniority.

There is a significant link between North Korea's recent military provocations and succession issues, said Lee Dong-bok, an expert on the North's negotiating tactics.

STOCKPILED AMMUNITION

North Korea, which has hundreds of mid-range missiles that can hit all of South Korea and most of Japan, is readying at least three or four missiles for firing, Yonhap quoted the lawmaker as saying after a briefing with defense officials.

The missiles could include the Rodong, which has been deployed since the 1990s, and a new intermediate range missile that can fly 3,000 km, the report said.

The missiles take little time to prepare, while it takes weeks to ready its longest-range rockets.

South Korea's Chosun Ilbo quoted a military source as saying the North had stepped up its military training, stockpiled ammunition and imposed a no-sail order off its west coast waters to prepare for a possible fight with the South.

In Seoul, the navy said it was deploying a guided-missile naval vessel to the same area in the Yellow Sea, close to the disputed border that has seen two deadly clashes between the rival states in the past 10 years.

The navy rarely announces such moves and it underscores the hard line being taken toward its communist neighbor by conservative South Korean President Lee Myung-bak, who earlier in the day won support at a meeting he hosted of Southeast Asian leaders who jointly condemned last week's nuclear test.

Many analysts say the North may opt for a skirmish on the sea border as the next step as it ratchets up tension but few believe it would dare put its million-strong but poorly equipped army into direct battle with the U.S.-backed South Korean military.

GUARDED SECRETS

The succession has been one of the most closely guarded secrets in the highly secretive North.

Yonhap quoted an informed source as saying the request for an oath of loyalty by North Korean officials to the youngest son came shortly after the nuclear test on May 25, which was hailed by the North's propaganda as a crowning achievement in Kim Jong-il's military first rule.

In April, Kim Jong-il put to rest any doubt about whom he sees as his second in command when he elevated his brother-in-law Jang Song-taek to a powerful military post, analysts said.

Analysts said they see the energetic and urbane Jang, 63, as the real power broker after Kim who will groom the successor. Jang, who once fell out of Kim's favor, has in recent year's been Kim's right hand man, they said.

(Additional reporting by Kim Junghyun and Jungyoun Park, editing by Jonathan Thatcher)

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