The agreement was reached at a high-level meeting held at the truce village of Panmunjom in the Demilitarized Zone, which has hosted ever more frequent cross-border talks in recent months.

"The South and North agreed to hold the groundbreaking ceremony for the connection and modernisation of the east and west coast rail and road in late November or early December," read a joint statement issued after the meeting.

But all civilian travel and communication between the two neighbours has been banned since the end of the Korean War in 1953, and it was not clear when construction and refurbishment work might start.

Officials also agreed to hold military talks "as soon as possible" to ease tensions at the border area and to arrange a Red Cross meeting to discuss issues on reunions for war-separated families.

They will also separately discuss a planned joint bid to host the 2032 Olympics and a show by North Korean performers in Seoul, the statement said.

Monday's talks marked the second meeting between South Korean unification minister Cho Myoung-gyon and his North Korean counterpart Ri Son Gwon since President Moon Jae-in met with Kim Jong Un in Pyongyang last month.

But as Seoul takes strides with the North, it has displayed increasing differences with its ally Washington, which is wary of the rapid pace of rapprochement on the peninsula.

At a summit with US President Donald Trump in Singapore Kim declared his backing for denuclearisation of the peninsula, but no details were agreed and Washington and Pyongyang have subsequently sparred over what that means and how it will be achieved.

The dovish Moon has long favoured engagement with the North, which is subject to multiple UN Security Council sanctions over its nuclear and ballistic missile programmes.

Moon -- who is currently in France on a European tour -- has dangled large investment and joint cross-border projects as incentives for steps towards denuclearisation, while the US has been adamant pressure should be maintained on Pyongyang until it fully dismantles its weapons programmes.

The head of Seoul's financial watchdog said last week that the US Department of Treasury held a conference call with South Korean banks in September urging them to "adhere to the UN and US sanctions against North Korea".