North Korea demanded to inspect evidence implicating it in the sinking of a South Korean warship when it held talks Thursday with the US-led UN Command on the issue, Pyongyang's media said.

The 90-minute meeting at the border truce village of Panmunjom was the first since South Korea and the United States accused the North of torpedoing the corvette, sending regional tensions sharply higher.

The North vehemently denies sinking the ship near the disputed inter-Korean border in March with the loss of 46 lives, and has threatened a military response to any attempts to punish it.

A US colonel from the United Nations Command, which has been based in the South since the 1950-53 war, met a North Korean counterpart Thursday to prepare for possible talks at general-level on the incident.

The North's official Korean Central News Agency (KCNA) said they agreed to meet again at colonel-level around next Tuesday.

A senior US defence official in Washington confirmed that the talks would be held, "potentially next week."

The communist state again demanded the right to send a high-level team to the South to inspect evidence dredged from the seabed, including what Seoul and other investigators say is part of a North Korean torpedo.

The South has already rejected the demand, saying the UN Command should handle the case as a serious breach of the armistice which ended the war.

The North's team Thursday branded the case as a "conspiratorial farce". It said a UN Security Council statement last Friday -- which condemned an attack on the ship without naming the perpetrator -- proved its point.

South Korea took the issue to the UN after a multinational investigation team said it found overwhelming evidence a submarine from the North torpedoed the ship.

The North said it must be allowed to inspect evidence and visit the scene of the sinking, otherwise the standoff would become more acute.

It said US forces, who would exercise wartime command over South Korea's troops, should press Seoul to accept before any higher-level talks are held.

The UN Command, in a brief statement, said only that both sides made proposals for follow-up talks and agreed to confirm details after consulting their superiors.

Before the Panmunjom discussions got under way the Pentagon announced it would go ahead with joint naval exercises with South Korea aimed at sending a warning to the North, despite strong protests from China.

But a Seoul defence ministry spokesman said this month's drill would be shifted from the sensitive Yellow Sea, between China and the Korean peninsula, to the Sea of Japan (East Sea).

A senior ministry official said separately the change of location was partly a concession to China in return for supporting a relatively strong UN statement.

China, the North's sole major ally, had reportedly only wanted to term the sinking an "incident" and not an "attack".

"Progress at the UN Security Council was also factored into" the switch of location, the ministry official told a background briefing.

North Korea denounces all drills between the South and its US ally as preparations for war. South Korea and the US say they are purely defensive.

Pentagon spokesman Geoff Morrell said Defense Secretary Robert Gates and Secretary of State Hillary Clinton would meet their counterparts in Seoul on July 21 to "discuss and likely approve a proposed series" of joint military exercises.

These would include "new naval and air exercises in both the Sea of Japan and the Yellow Sea", Morrell said Wednesday.

Chinese Foreign ministry spokesman Qin Gang played down suggestions that China and North Korea could respond with military drills of their own, and was quoted by the official Xinhua news agency late Thursday as saying the idea demonstrated "a typical Cold war mindset".

"The hypothesis (of conducting a drill) means dividing the region into different military alliances and viewing regional security from an angle of opposition and confrontation as in the Cold war era," he was quoted as saying.

"Times have changed. No single country or military alliance can resolve issues like regional security and stability."