North Korea warned Tuesday that South Korean-US war games this month would torpedo efforts to rid the peninsula of nuclear weapons, and vowed to strengthen its atomic arsenal if necessary.

Despite tensions over the exercise the two Koreas went ahead with talks on ways to ease business at their jointly-run Kaesong factory estate, a valuable revenue source for the sanctions-hit North.

The March 8-18 exercise comes "at a time when the international community is growing more vocal than ever before calling for a settlement of the nuclear issue", the official Korean Central News Agency (KCNA) said in a commentary.

"Obviously this (exercise) is a deliberate attempt to disturb peace on the peninsula and torpedo the process for its denuclearisation."

Diplomatic efforts are intensifying to revive six-nation nuclear disarmament negotiations which the North abandoned last April, a month before staging a second nuclear test.

"We are very anxious to see the talks resume, and we have made that clear to North Korea," US State Department spokesman Philip Crowley said Monday, shortly after US envoy Stephen Bosworth ended a regional tour to try to restart the dialogue.

Before it returns to dialogue, the North calls for UN sanctions to be lifted. It also wants a US commitment to discuss a peace pact to replace the armistice which ended the 1950-1953 war.

The North routinely criticises war games in South Korea as a rehearsal for invasion, while Seoul and its ally Washington say they are purely defensive.

The Key Resolve/Foal Eagle exercise will draw 10,000 US troops stationed in South Korea plus 8,000 from abroad, and an undisclosed number of South Korean troops.

KCNA said such exercises would drive "the process for the denuclearisation of the peninsula to a collapse".

"The reality goes to prove how urgent and crucial the conclusion of a peace treaty and the termination of the hostile relations are for finding a solution to the nuclear issue on the peninsula," it said.

Denuclearisation "can never take even a step forward" as long as North Korea and the United States remain technically at war and the US threat of a nuclear conflict remains, it said.

"Should the US persist in its unrealistic moves to stifle (North Korea) in disregard of its realistic proposal, this will only compel it to boost its nuclear deterrent and its delivery means," KCNA said.

The North has said it developed nuclear weaponry because of a US threat of aggression and cannot discard them while the threat remains.

Last week the military accused South Korean and US troops of planning a surprise attack under the pretext of the exercise and warned it could respond with atomic weapons.

The communist state has also announced it is holding four South Koreans for illegal entry but has given no details. A South Korean activist has said the four entered the North from China.

Unidentified Seoul officials quoted by Yonhap news agency said their five-strong delegation to Tuesday's talks would ask about the incident.

The two sides met at Kaesong just north of the heavily fortified border, where 42,000 North Koreans work at 110 South Korean-funded plants.

Previous talks about the estate ended without agreement after the North demanded that pay rises for its people should be the priority.

Seoul wants South Korean employees at Kaesong to be allowed to use mobile phones and the Internet, and says border crossing procedures should be simpler and speedier.