The sanctions are the latest against third-country companies and individuals in an effort to exert greater economic pressure on Kim Jong Un's regime, which has conducted regular missile and nuclear tests in defiance of United Nations resolutions and has developed weapons that may be capable of hitting the continental U.S.
Such propaganda videos are not uncommon for North Korea.
Impoverished North Korea hates the drills in part because it must frequently respond with its own expensive displays of military might. It also features members of the Trump administration engulfed in flames.
The animated video has created an uproar in Whitehouse as Chairman of the U.S. Joint Chiefs of Staff (JCS) Joseph Dunford, Vice President Mike Pence, CIA Director Mike Pompeo, Defense Secretary Jim Mattis, and Secretary of State Rex Tillerson, including the US President Donald Trump were also seen in the footage. The military event, known as Ulchi-Freedom Guardian, involves land, sea, and air exercises as well as computer simulations and will continue until August 31.
Wood said the "path to dialogue remains open".
South Korea's President Moon Jae-in said Monday that North Korea must not use the drills as a pretext to launch fresh provocation, saying the training is held regularly because of repeated provocations by North Korea.
"That is a false equivalency that we can not accept and will not accept", he said. North Korea is unhappy with the annual exercises, but they take on heightened significance as President Trump has chose to mimic the over-the-top rhetoric of the North Korean dictator Kim Jong-un.
"This is an exercise to make certain that we're ready to defend South Korea and our allies over there", he said.
"Treasury will continue to increase pressure on North Korea by targeting those who support the advancement of nuclear and ballistic missile programs, and isolating them from the American financial system", said Treasury Secretary Steven T Mnuchin.
"The U.S. will be wholly held accountable for the catastrophic consequences to be entailed by such reckless aggressive war maneuvers, as it chose a military confrontation with the DPRK", a spokesman for the Panmunjeom mission of the Korean People's Army said in a statement carried by the Korean Central News Agency.