UPDATE:  The AP is providing more details about what happened:

South Korea’s Joint Chiefs of Staff said in a statement that a North Korean patrol boat crossed the disputed western sea border about 11:27 a.m. (0227 GMT), drawing warning shots from a South Korean navy vessel. The North Korean boat then opened fire and the South’s ship returned fire before the North’s vessel sailed back toward its waters, the statement said.

The clash occurred near the South-held island of Daecheong, about 120 nautical miles (220 kilometers) off the port city of Incheon, west of Seoul, the statement said.

The North Korean ship was seriously damaged in the skirmish, a Joint Chiefs of Staff officer said on condition of anonymity, citing department policy. Prime Minister Chung Un-chan told lawmakers the ship was on fire when it fled north.

Lee, the commodore, said the shooting lasted for about two minutes, during which the North Korean ship fired about 50 rounds at the South Korean vessel, about two miles (3.2 kilometers) away. He said the South Korean ship was lightly damaged.

Lee said several Chinese fishing boats were operating in the area at the time of clash, but they were undamaged. Chung, the prime minister, described the clash as “accidental,” telling lawmakers that two North Korean ships crossed into South Korean waters in an attempt to clamp down on Chinese fishing.  [Associated Press]

With President Obama set to visit Korea soon during his Asia trip you do have to wonder if this was intentional or not.  However, the problems with the Chinese fishing boats is well documented and maybe this was an unintentional confrontation, but judging by North Korea’s track record, I am skeptical.

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This doesn’t appear to have been much of anything compared to prior clashes between the North & South Korean navies:

The divided Koreas clashed Tuesday off their west coast, with no South Korean casualties immediately reported while a North Korean vessel apparently suffered damage, a South Korean defense official said.

“No South Korean casualties were immediately reported,” the official said, adding a North Korean patrol ship prompted the South Korean Navy to fire warning shots after crossing the Northern Limit Line (NLL) where skirmishes turned bloody in 1999 and 2002.

“The North Koreans then fired back,” he said, adding the clash occurred at 11:28 a.m. near Baekryeong island.

“The North appears to have suffered damage,” the official said, declining to be identified because the information was preliminary.  [Yonhap]

Tensions have been building along the NLL for some time, but I doubt the North Koreans would engage on a ship on ship naval battle considering the disparity in the quality of ships between the North and the South.