South Korea launched a live-fire military exercise on a border island on Monday, despite North Korean threats of deadly retaliation, as UN diplomacy on the regional crisis broke down.

But in an apparent sign of compromise over its nuclear ambitions, CNN said North Korea had agreed with US troubleshooter Bill Richardson to permit the return of UN atomic inspectors to ease tensions on the peninsula.

“The drill has started,” a ministry spokesman told a news agency around 2:30 pm (0530 GMT).

An agency photographer sheltering in a bunker on Yeonpyeong island confirmed he heard the sound of artillery.

“Our armed forces are now on alert and jet fighters are on airborne alert,” the ministry spokesman said.

Yonhap news agency said two destroyers had also been deployed in forward positions in the Yellow Sea.

An emergency UN Security Council meeting failed to agree a statement on the crisis, and Russia warned that the international community was now left without “a game plan” to counter escalating tensions.

After a similar exercise by marines based on Yeonpyeong on 23^rd November, the North fired some 170 shells onto or around the island, killing four people including civilians and damaging dozens of homes.

It had threatened even deadlier retaliation if this week’s drill went ahead, saying South Korean shells from such exercises regularly land in its waters.

The North disputes the Yellow Sea border drawn by United Nations forces after the 1950-53 Korean War. It claims the waters around Yeonpyeong as its own.

The North’s military appears to be preparing for a counter-attack, removing covers from coastal artillery guns and forward-deploying some batteries, a military source told Yonhap.

But CNN correspondent Wolf Blitzer, who is travelling withRichardson in Pyongyang, said there were signs of deal-making.

North Korea had agreed with Richardson, a former USambassador to the UN, to let inspectors from the UN’s International Atomic Energy Agency go back to its Yongbyon nuclear facility, Blitzer said.

It had also agreed to allow fuel rods for the enrichment of uranium to be shipped to an outside country, and to the creation of a military commission and hotline between the twoKoreas and the United States, Blitzer said.