In opening remarks on the first day of talks at Beijing's Diaoyutai State Guesthouse the two sides showed few signs of backing down from their hardline positions.

But they agreed to hold a "bilateral contact" to discuss the way forward, South Korea's chief delegate Lee Soo-Hyuck told reporters.

The two sides had what was termed an "informal chat" during the first round of inconclusive six-party talks in Beijing last August, although Washington later downplayed the significance of the encounter.

While North Korea's chief delegate Deputy Foreign Minister Kim Kye-gwan said he was prepared to be flexible and hoped for a positive outcome, he insisted his party would be sticking to its "principles".

"Thanks to the seriousness of the efforts of all the delegates here, we look forward to a positive outcome of this current session," he said.

"To this end, our delegation will expend efforts and cooperation, while maintaining our principles and showing flexibility in accordance with the consistent positions of the DPRK government."

US envoy James Kelly was equally adamant in his address, reiterating the call for North Korea to completely dismantle its plutonium and uranium-based nuclear programs.

"As President George W. Bush has stated, the US is for the complete eradication of plutonium and uranium-based weapons," said Kelly, while assuring the North that it had no plans to invade.

"The US has no intention for invading or attacking the DPRK. We hope to open the prospect of fully normalised diplomatic relations among all parties."

Washington backed up its position with a statement issued by the US embassy making clear there would be no rewards without Pyongyang meeting its international obligations concerning the development of nuclear weapons.

"The US will not provide North Korea with rewards for complying with its international obligations," the statement said.

"Further pursuit of nuclear weapons will only lead to its further isolation and is against its long-term interests."

Washington has long insisted on agreement from North Korea for a complete, irreversible and verifiable dismantling of its weapons programs before it offers the economic and energy aid and security guarantees Pyongyang wants.

In an angry diatribe Tuesday, the North Korean government again denied it had a uranium-based program in violation of a 1994 nuclear freeze accord, a key US claim that sparked the crisis in October 2002.

It also ruled out freezing its plutonium-based nuclear programs, which it first offered to do in December, until the issue of compensation was resolved.

Delegate Kim repeated that position Wednesday, said South Korea's Lee.

"North Korea repeated its previous basic stance," said Lee, who described the atmosphere at the talks as "cool and businesslike."

A way out of the stalemate has been proposed by Lee who Wednesday tabled a three-point plan he hopes will draw a close to an initial phase of the 16-month standoff that also includes China, Japan and Russia.

It is the only plan of action on the table, he said.

In the first phase of South Korea's proposal, North Korea is to declare it intends to abandon all nuclear weapons programs, while the other participants will promise to provide a security guarantee.

In the second phase, North Korea is to dismantle its nuclear facilities while relevant countries take corresponding measures. He would not elaborate on what he meant.

In the third phase, all countries will work to "comprehensively improve relations."

He also proposed that working level groups meet every two months.

The first stage of the proposal would be discussed Thursday, he added.

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