"We have prepared a contingency plan, including possible military action, in case of a serious situation," Defence Minister Kim Kwan-Jin told ruling party MPs in a meeting.
"We should try to prevent the situation from going to the worst," Kim added.
North Korea blocked South Korean access to the Seoul-funded Kaesong joint industrial zone on Wednesday, but said it would allow the 861 South Koreans currently there to leave.
As of 2:00 pm (0500 GMT) only nine had crossed back over the border into South Korea.
The South's Unification Ministry said many had voluntarily opted to stay in Kaesong to ensure the smooth operation of their companies there.
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