More than 40 Chinese ships crossed into South Korean waters near Gageodo Island, off the country's southwest coast, the coast guard said. They were intercepted and ordered to leave.
Coast guard ships fired "warning shots at the bows of the Chinese ships," including 180 rounds from an M-60 machine gun, and almost 70 rounds from assault rifles and shotguns, the South Korean coast guard said in a statement.
Chinese foreign ministry spokeswoman Hua Chunying on Wednesday expressed Beijing's "serious concern" over the incident.
"China has always attached great importance to the management of overseas fisheries and have actively taken effective measures in relevant waters to maintain fishery production order," she said.
"We hope the South Korean side will handle the relevant issue properly, avoid taking excessive actions that could jeopardize lives during law enforcement, earnestly ensure the safety and legitimate rights of Chinese fishermen, and strengthen communication with the Chinese side."
In the statement Wednesday, the South Korean coast guard said the Chinese ships attempted to rush coast guard vessels.
"Chinese ships equipped with steel bars and wire mesh ignored the eviction warning broadcasts from (the coast guard) and rushed towards the patrol boat," the statement said.
A video of the incident showed a machine gun being fired across the bow of a ship heading toward a coast guard ship.
Long-running dispute
Under the United Nations Convention on the Law of the Sea (UNCLOS), to which both China and South Korea are parties, coastal states can claim an exclusive economic zone (EEZ) up to 200 nautical miles from their coastline.
According to the South Korean coast guard, the Chinese ships were one nautical mile within the fisheries agreement line, and were ordered to retreat back to international waters.
Writing for AMTI, Korea analyst Lisa Collins said Chinese fishermen "take advantage of the standoff between North and South Korea to fish illegally" near the boundary line between the two countries.
"The potential for third-party interference by North Korea in these disputes, or the use of North Korean waters by Chinese fishermen to evade capture, adds a complex dimension to an already intractable problem," she said.
In its statement, the Korean Coastguard cited Article 17 of the country's Maritime Security Act which says "if a ship or any other person uses a dangerous object such as a hull, weapon, or other items to attack or attempt to attack coast guards, weapons can be used."
Coast guard official Lee Sang-In said they would continue to deploy large numbers of vessels and officers "against illegal Chinese ships."
CNN's Steven Jiang contributed reporting from Beijing.