President Moon's remarks come just hours after foreign media carried reports citing unnamed USA officials that North Korea has conducted another test of rocket engine that they believe could be for an intercontinental ballistic missile.
USA spy satellites have detected new activity at North Korea's underground nuclear test site that involve some modifications around one of the tunnel entrances to an underground test area, US officials said. At least one report says a blast could come as soon as the next few days.
The US has also ramped up its military presence in the region, conducting drills with Japan as well as South Korea, and is installing a controversial missile defence system in Seoul, known as Terminal High-Altitude Area Defence system (Thaad).
South Korean President Moon Jae-in Friday oversaw a missile test, which his office said was "aimed at sending a clear warning against North Korea's repeated provocations".
Conflict between US and North Korea possible.
USA officials, speaking anonymously to news agencies, said the engine could potentially be fitted to an intercontinental ballistic missile (ICBM).
South Korean officials did not have details about the reported test and declined to comment on the possible nature of the engine.
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"I believe in dialogue, but dialogue is possible when it's backed by strong defense and engagement policy is possible only when we have security ability that can overwhelm the North", Moon was quoted by his office as saying at the test site.
Chinese Foreign Ministry spokesman Geng Shuang said China opposed any action that violated UN Security Council resolutions and called for restraint from all parties.
Newly-elected South Korean President Moon Jae-in spoke during an inspection tour of a test launch of a ballistic missile being developed by his country.
South Korea began developing Hyunmoo-2 after a 2012 agreement with its ally, the United States, to increase the range of its weapons to 800 kilometers (500 miles) and raise the warhead limit to 500 kilograms (1,100 pounds).
"We've said many times that China is making unremitting efforts to resolve the Korean peninsula nuclear issue, and plays an active and constructive role", he said. The North also conducted two nuclear tests past year alone as it openly pursues a long-range nuclear missile that could reach the U.S. mainland.
In March after North Korea conducted three rocket engine tests. ICBMs have a minimum range of about 5,500km, but some are created to travel 10,000km or farther.
The Hyunmoo-2 is test-fired from a mobile launch pad at a test site of the Agency for Defense Development in Anheung, South Korea, Friday, June 23, 2017. The previous intercept test, conducted in February, had been successful.
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