A North Korean submarine's torpedo sank a South Korean navy ship on 26 March causing the loss of 46 sailors, an international report has found.
Investigators said they had discovered part of the torpedo on the sea floor and it carried lettering that matched a North Korean design.
Pyongyang rejected the claim as a "fabrication", South Korea's Yonhap agency reported.
It said the North threatened war if sanctions were imposed by the South.
But South Korean President Lee Myung-bak pledged to take "stern action" against the North.
The White House described the sinking of the ship as an "act of aggression" by North Korea that challenged peace.
UN Secretary General Ban Ki-moon said the report was "deeply troubling".
The Cheonan went down near the disputed inter-Korean maritime border, raising tension between the two nations, which technically remain at war.
The shattered wreck of the 1,200-tonne gunboat was later winched to the surface, in two pieces, for examination.