Tens of thousands of South Korean and USA troops are taking part in the "Ulchi Freedom Guardian" joint military drills, a largely computer-simulated exercise that runs for two weeks in the South.
The United States also describes them as "defensive in nature", a term North Korean state media has dismissed as a "deceptive mask".
The Aug. 21-31 exercises will involve 17,500 US troops and 50,000 South Korean soldiers.
North and South Korea are technically still at war after the 1950-1953 Korean War ended with a truce, not a peace treaty.
The 10-day Ulchi-Freedom Guardian drills are seen by Pyongyang as a reheasal for the invasion of North Korea.
"President Moon said he understands why the United States has traditionally said all options were on the table to push North Korea to give up its nuclear ambitions". The drills are largely computer-simulated war games held every summer - and every year have infuriated North Korea enough to draw threats.
They said the war exercise and the mobilization of US strategic assets should be stopped to peacefully resolve the peninsula issue, citing the halt of the U.S. The U.S. has always maintained these are purely defensive and to keep the two militaries prepared in case of an unplanned event like a missile strike.
North Korea's official Rodong Sinmun newspaper warned Sunday that the drills are "the most explicit expression of hostility" against it and an act of "adding fuel to the fire" on the divided peninsula.
David Wright, a US analyst from the Union of Concerned Scientists, said in an emailed statement that the United States should "postpone or significantly restructure" the exercises to reduce the risk of military confrontation. However, the US and South Korea maintain they are purely defensive. Around 17 thousand US troops are now taking part in the drills, while some 25 thousand USA soldiers took part a year ago.
If North Korea uses the drills this week as a reason to launch missiles around Guam or elsewhere, it could set off a new cycle of escalation. North Korea has already launched eleven ballistic missile tests so far in 2017.
In a commentary carried by the Rodong Sinmun newspaper, Pyongyang warned of an "uncontrollable phase of a nuclear war" on the peninsula that would entangle the USA mainland.
Mattis also made clear the US' willingness to use force if North Korea steps out of line.
Pyongyang then threatened to fire a salvo of missiles towards the U.S. territory of Guam - a plan that leader Kim Jong-Un then delayed, but warned could go ahead depending on Washington's next move.
Combative rhetoric between the nations spiked after Pyongyang tested two intercontinental ballistic missiles (ICBM) last month that appeared to bring much of the US within range, sparking an intense warning by US President Donald Trump that Washington could rain "fire and fury" on the North.
This year, the US has scaled back the number of troops participating by about eight thousand, but Defense Secretary James Mattis says that's not because of heightened tensions.