The spending helped North Korea to produce the modern weaponry needed to head off a US attempt to remove its "nuclear deterrent," North Korean Deputy Prime Minister Ro Tu-Chol said late Wednesday.

"This year the US resorted to all sorts of vicious moves to force (North Korea) to completely dismantle its nuclear deterrent force though it was built to cope with the US threat," he said through Pyongyang's official Korean Central News Agency (KCNA).

North Korea reacted to Washington's "nuclear threat and pressure" with tough counter-measures such as lifting a freeze on its nuclear program, he said.

North Korea's parliament initially set aside 15.4 percent of this year's budgetary expenditure for the armed forces but actual defense expenditure rose to 15.9 percent of the budget, he said.

He said North Korea's defense industry has been reinforced to successfully manufacture "modern offensive and defensive means."

North Korea's state coffers were already virtually empty because of years of economic crises which have been aggravated by the nuclear standoff with the United States.

The Stalinist state has relied on outside handouts to feed its 22 million people since a series of natural disasters caused widespread famine in the mid-1990s.

North Korea has also stepped up propaganda to put its people on a war footing in preparation for what they fear is an impending US attack.

Drills and blackouts have been common in North Korea this year, with supreme leader Kim Jong-Il giving top priority to defense in what has been called his "military-first" policy.

On Wednesday, the KCNA praised Kim for continuing his inspection tour of army units.

"In recent days alone, he inspected army units almost every day and took good care of servicemen's life," it said.

The nuclear standoff also prompted US and South Korean troops to bolster firepower.

The United States, under a 50-year-old mutual defense treaty, stations 37,000 troops in South Korea, and has performed key military functions since the end of of the 1950-53 Korean War.

Those roles will gradually be reassigned to South Korean forces under a realignment plan that will see US troops pulled back from the frontier with North Korea over the next several years.

For its part, South Korea agreed to boost its defense spending for 2004 by 8.1 percent, the biggest increase in seven years.

The crisis began in October last year when Washington accused Pyongyang of running an enriched uranium program in violation of a 1994 nuclear freeze accord.

Washington insists Pyongyang must verifiably scrap its atomic weapons, while North Korea has sought a non-aggression pact with the United States and other benefits in return for giving up its nuclear arsenal.

The United States believes North Korea already has one or two crude nuclear bombs and could speedily build more using a stockpile of spent nuclear fuel at its Yongbyon nuclear complex.

WAR.WIRE