Seoul partially suspended the agreement last year after the North put a spy satellite into orbit, but the NSC said it would tell the cabinet "to suspend the entire effect of the 'September 19 Military Agreement' until mutual trust between the two Koreas is restored".
In the last week, Pyongyang has sent nearly a thousand balloons carrying garbage including cigarette butts and likely manure into the South, in what it says was retaliation for missives bearing anti-regime propaganda organised by activists in the South.
South Korea has called the latest provocation from its neighbour "irrational" and "low-class" but, unlike the spate of recent ballistic missile launches, the trash campaign does not violate UN sanctions on Kim Jong Un's isolated government.
The North called off the balloon bombardment Sunday, saying it had been an effective countermeasure -- but warning that more could come if needed.
The 2018 military deal, signed during a period of warmer ties between the two countries which remain technically at war, aims to reduce tensions on the peninsula and avoid an accidental escalation, especially along the heavily fortified border.
But after Seoul partially suspended the agreement in November last year to protest Pyongyang's successful spy satellite launch, the North said it would no longer honour the deal at all.
As a result, Seoul's NSC said the deal was "virtually null and void due to North Korea's de facto declaration of abandonment", anyway, but that abiding by the remainder of it was disadvantaging the South in terms of their ability to respond to threats like the balloons.
Respecting the agreement "is causing significant issues in our military's readiness posture, especially in the context of a series of recent provocations by North Korea that pose real damage and threats to our citizens", it said.
The move will allow "military training in the areas around the Military Demarcation Line", it said, and also enable "more sufficient and immediate responses to North Korean provocations", it added.
The decision will need to be approved by a cabinet meeting set for Tuesday before it takes effect.
Ties between the two Koreas are at one of their lowest points in years, with diplomacy long stalled and Kim Jong Un ramping up his weapons testing and development, while the South draws closer to major security ally Washington.
- Block the balloons? -
Seoul's decision to jettison the 2018 tension-reducing deal shows "that it will not tolerate trash balloons coming across the border, considering international norms and the terms of the truce", said Hong Min, a senior analyst at the Korea Institute for National Unification in Seoul.
"However, it could further provoke Pyongyang when it is impossible to physically block the balloons drifting southwards in the air," he said.
"The safety of the citizens cannot be guaranteed with such actions while it can wait for the situation to cool down and seek ways to resolve it."
South Korea's Joint Chiefs of Staff said the balloons were not found to contain hazardous materials, but had been landing in northern provinces, including the capital Seoul and the adjacent area of Gyeonggi, which are collectively home to nearly half of South Korea's population.
South Korean officials have also said Seoul would not rule out responding to the balloons by resuming loudspeaker propaganda campaigns along the border with North Korea.
In the past, South Korea has broadcast anti-Kim propaganda into the North, which infuriates Pyongyang, with experts warning a resumption could even lead to skirmishes along the border.
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