The annual joint exercises -- which the North routinely condemns as provocative rehearsals for invasion -- will go ahead as scheduled from the end of February, Unification Ministry spokesman Kim Eui-Do told reporters.
"Our military exercises are routine annual defensive drills, like those conducted by all sovereign states," Kim said.
Last year's exercises were held in the wake of North Korea's third and largest nuclear test, and prompted months of escalated military tensions that saw Pyongyang issue apocalyptic threats of nuclear war against the South and the United States.
The latter proposal, which came as something of a surprise, was made late Thursday by the North's top military body, the National Defence Commission (NDC), which also reiterated the need to cancel the upcoming military manoeuvres.
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The South's Unification Ministry brushed the proposal aside, saying the only slander and provocation came from the North's side.
"We don't slander North Korea so there is nothing for us to stop," spokesman Kim said.
Kim also reiterated South Korean President Park Geun-Hye's recent call for the "humanitarian" resumption of reunions for families separated by the 1950-53 Korean War.
The North rejected Park's proposal, citing the planned South-US exercises as a major barrier.
Analysts said both sides were jockeying for the moral high ground ahead of what is gearing up to be a re-run of last year's display of military brinksmanship, which triggered global concerns of a full-scale conflict.