The pact, which was the most substantive deal to come out months of historic summit meetings between the two Koreas in 2018, had been all but scrapped when Pyongyang declared last year it was no longer bound by it.
Since then, the North deployed troops and weapons at guard posts near the military border.
By continuing to comply with the pact, “there have been considerable problems in our military’s readiness posture”, the Council said.
South Korea has previously said it would take “unendurable” measures against North Korea for sending the trash balloons over the border, which could include blaring propaganda from loudspeakers positioned at the border directed at the North.
North Korea has said the balloons were in retaliation for a propaganda campaign by North Korean defectors and activists in the South, who regularly send inflatables containing anti-Pyongyang leaflets with food, medicine, money and USB sticks loaded with K-pop music videos and dramas across the border.
North Korea has reacted angrily to the campaign because it is worried about the potential impact of the materials on the psychology of the people who read or listen to them and on the state’s control of the public, experts said.