South Korea is to strengthen its military presence on five islands close to North Korea, amid tensions over a clash that left four people dead.
It will also review its policy on the use of force, amid domestic concerns that the country has became rather passive in its responses to provocation from the North.
Defence minister Kim Tae-young resigned on Thurday. In a statement, the minister said he took full responsibility.
President Lee Myung-bak will name his successor on Friday.
The government also said it was changing its rules of engagement to allow it to respond more forcefully to similar incidents.
In future, the South would implement different levels of response, depending on whether the North attacked military or civilian targets.
South Korean broadcaster, KBS, said the new rules called for the South to fire back "with shots two to three times more powerful than the enemy artillery".
Meanwhile in North Korea, the official KCNA news agency reported a threat of further military action if the South continued on its "path of military provocation".
Shelling by North Korea of the island of Yeonpyeong on Tuesday killed two civilians and two marines, and prompted an increase in regional tension.
China, which has not apportioned blame, has urged both sides to show restraint.