"Kim Jong-il did not appear at the parade" the source said after watching the event on Kim Il-Sung Square in central Pyongyang.
According to South Korea's Yonhap agency, Kim, 66, suffers from diabetes and heart problems.
The source said the parade featured only reservists from the Worker-Peasant Red Guards. A total of 40 columns passed, and the only items of military hardware on display were anti-aircraft guns, defensive guided missile launchers, and machine guns.
South Korean newspaper Chosun Ilbo earlier cited an unnamed South Korean official in Beijing as saying that Kim collapsed last month. Last week, the paper said five Chinese doctors had been paying visits to Pyongyang since late August, and may have been treating Kim.
The North Korean leader attended military parades in 1998 and 2003, on the last two major anniversary of his country's founding.
He has not been seen in public since August 14, Yonhap said.
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