South Korea's Unification Minister Chung Dong-Young, Seoul's chief delegate, said in his opening remarks that North Korea should quickly end a dispute over US financial sanctions imposed on North Korea.

"We urged them to remove an obstacle to the sixth round of six-party talks as soon as possible," Kim Chun-Sig, spokesman for South Korea's delegation, said." Our side also called for the early resumption of six-party talks."

South Korea said the implementation of an agreement on ending North Korea's nuclear weapons drive reached at the fourth round of six-nation talks in September would spur inter-Korean cooperation, he added.

North Korea's chief delegate Kwon Ho-Ung, a cabinet councilor, made no immediate response. Instead he insisted that South Korea end all joint military exercises with the United States, Kim said.

"There was no immediate answer from the North Korean side. They just listened sincerely to what our side said," he said.

Seoul and Washington, which stations 32,500 troops in South Korea, have been military allies for decades and regularly stage joint military drills aimed at deterring North Korean aggression.

Pyongyang's long-term strategy of driving a wedge between the two allies has been eased by recent differences over the nuclear standoff between hardliners in Washington and Seoul's policy of reconciliation with North Korea.

Chung is scheduled to travel Sunday to Washington for talks with policymakers there on the nuclear stalemate.

Separately, South Korea's chief envoy to the six-party talks, Song Min-Soon, attended the welcome dinner here Tuesday for the North Korean delegates, Unification Ministry spokesman Yang Chang-Seok said.

He did not say whether Song had separate talks with North Korean officials.

North Korea said on Sunday that nuclear disarmament talks would be suspended indefinitely because of US financial sanctions imposed on it.

North Korea agreed in principle at the fourth round of six-party talks in Beijing in September to dismantle its nuclear weapons program in exchange for diplomatic and economic benefits and security guarantees.

The latest session, however, ended in stalemate last month, with Pyongyang urging Washington to lift sanctions on its firms.

The US Treasury Department in September told US financial institutions to stop dealing with a Macau bank, Banco Delta Asia, which it accused of being a willing front for North Korean counterfeiting.

A month later the US blacklisted eight North Korean companies allegedly involved in the proliferation of weapons of mass destruction.

Last week US ambassador to Seoul Alexander Vershbow called Pyongyang a "criminal regime" engaged in illegal activities including money laundering and counterfeiting.

North Korea angrily denounced Vershbow's remarks as a "declaration of war" and on Wednesday called for his expulsion from South Korea.

South Korean officials said the inter-Korean dialogue also covered other thorny issues such as prisoners of war, military talks and the delayed opening of cross-border railways.

South Korea says 546 prisoners of war captured by North Korea during the 1950-53 Korean War and some 485 civilians, mostly fishermen abducted since the conflict, are still alive in the North.

Though economic exchanges have greatly increased following an inter-Korean summit in 2000, North Korea has balked at holding high-level military talks on easing tension, after two initial rounds in June 2004.

"Our side stressed that progress in the military field is essential to development of inter-Korean relations," Kim said.

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