South Korea warned North Korea today not to risk losing the benefits of inter-Korean economic cooperation by escalating the nuclear crisis, pool reports said.

The warning came as South and North Korean officials met in Pyonyang to discuss how to reactivate inter-Korean reconciliation projects stalled by the seven-month-old standoff over the North's nuclear weapons ambitions.

"It is our precondition that North Korea's nuclear problem should not worsen to allow smooth progress in inter-Korean economic cooperation," South Korea's chief delegate, Vice Finance and Economy Minister Kim Gwang-Lim, said in an opening statement.

Kim said the nuclear crisis was hurting the South Korean economy, according to South Korean pool reports.

South Korea has viewed its economic engagement policy with North Korea as separate from the nuclear crisis, which erupted in October last year when the US accused the Stalinist government of running a secret nuclear program based on enriched uranium.

But Seoul outlined a tougher stand after a summit last week between US President George W Bush and South Korean leader Roh Moo-Hyun.

A joint statement signed by Roh and Bush indicated that inter-Korean exchanges could be linked to the nuclear crisis and referred to the need for "further steps" if the crisis deepened.

Roh has until now opposed any form of pressure, including the threat of sanctions or military action, against North Korea.

However, the joint statement indicated that Roh would no longer be opposed to some form of coercion against North Korea. It also helped dispel US concerns about his views on the 50-year-old bilateral alliance.

South Korean officials said yesterday that from now on inter-Korean exchanges would depend on North Korea's conduct in the nuclear standoff. Japan also hardened its stance, indicating it may suspend remittances to North Korea.

South Korea and Japan have expressed deep reservations about the imposition of economic sanctions on North Korea, which has escalated the crisis by expelling UN nuclear inspectors, withdrawing from the Non-Proliferation Treaty and firing up a nuclear reactor at its Yongbyon plant.

At talks aimed at defusing the crisis in Beijing last month, US officials said North Korea admitted possessing nuclear weapons.

North Korea has urged South Korea not to side with the US, insisting the nuclear issue was a matter to be discussed only between Pyongyang and Washington.

In Washington, White House spokesman Ari Fleischer said Bush may discuss possible new talks with North Korea during his meeting with Japanese Prime Minister Junichiro Koizumi this week.

"We're still talking about the exact next steps to take," Fleischer said.

He said the timing of any new exchanges was unclear, but stressed that they would be in a "multilateral form" if they are held - apparently reiterating Washington's opposition to one-on-one talks with Pyongyang.

In Pyongyang, the South's chief delegate offered to ship humanitarian aid to the North, which has been battling years of food shortages.

He stressed that Seoul's donations would include rice shipments if Pyongyang ensured their transparent distribution.

At inter-Korean talks last month, the impoverished country asked for 200 000 t of South Korean rice by the end of June and 300 000 t in the second half.

South Korea is a top donor of food and other aid to its bankrupt northern neighbour, which has been unable to feed its people for nearly a decade.

The World Food Program has requested international help to feed North Koreans since urgent appeals in December for 2001 to help a targeted 6,4-million people in the famine-hit country. – Sapa.