The South Korean presidential office confirmed on Saturday that a meeting is going on, between the country's national security director, Kim Kwan-jin and North Korea's top military officer Hwang Pyong So.
Hwang is considered by outside analysts to be North Korea's second most important official after supreme leader Kim Jong Un.
They are joined by the two countries' top Korean unification officials.
South Korean troops were on maximum alert on Saturday, with North Korea threatening to go to war unless the deadline was met.
The situation is being closely watched, with Ban Ki-moon, the UN secretary-general, calling for restraint from both sides and the US urging North Korea to avoid further escalation.
Military tensions have surged on the divided peninsula since an exchange of artillery fire on Thursday, which the South says was begun by the North.
The North Korean foreign ministry gave warning in a statement early on Saturday that "the situation which has reached the brink of war is now hardly controllable".
Kim Jong-un, the North Korean leader, put frontline troops on alert on Friday.
The North Korean foreign ministry has warned that the country is "prepared to risk an all-out war not just to simply respond or retaliate, but to defend the system our people chose".
The North Korean People's Army said late on Friday that its frontline troops had moved into a "fully armed, wartime state" in line with the wishes of Kim and in advance of Saturday's 5pm deadline.
Technically, the two Koreas have been at war for the past 65 years, as the 1950-53 Korean conflict ended with a ceasefire that was never ratified by a formal peace treaty.
The last direct attack on the South was in November 2010 when North Korea shelled the South Korean border island of Yeonpyeong, killing two civilians and two soldiers.
Military exercise
Tensions were already running high over some mine blasts earlier this month that maimed two South Korean border soldiers, and the launch last Monday of an annual South Korea-US military exercise that infuriated the North.
South Korea says it has no intention of removing the loudspeakers, and on Friday President Park Geun-hye appeared on television, wearing army fatigues and telling top military commanders that further North Korean provocations "will not be tolerated".
There are 28,000 US troops in South Korea, plus another 3,000 in country for the annual exercise.
US forces briefly suspended exercises in South Korea on Thursday after North Korean artillery fired several rounds across the border, the Pentagon said on Friday.
David Shear, assistant secretary of defence, said US forces have since resumed scheduled joint exercises with the South Korean military, but remained in an "enhanced" state of readiness.
Shear blamed North Korea for the rising tensions and urged North Korea to refrain from "actions and rhetoric that threaten regional peace and stability, and we are at one with our ROK ally on this."
A call for calm and restraint has also came from China, the North's main diplomatic protector and economic supporter.
Ties between China and North Korea have become strained, and China will be keen to avoid any regional flare-up as it seeks to attract world leaders to Beijing next month for a three-day celebration of Japan's defeat in World War II.
Source: Al Jazeera
