North Korea severs ties with Seoul

North Korea has said it is severing all ties with the South and threatened its wealthy neighbour with military action if it continued to violate its waters off the west coast.

The comments mark a new high in tensions on the divided peninsula after the March sinking of a South Korean warship, which Seoul blames on a torpedo fired by the North.

The increasingly war-like rhetoric earlier hit Seoul's financial markets, prompting policymakers to call an emergency meeting on Wednesday to look for ways to calm investors.

North Korea's KCNA news agency reported: "The Committee for the Peaceful Reunification of Korea .... formally declares that from now on it will put into force the resolute measures to totally freeze the inter-Korean relations, totally abrogate the agreement on non-aggression between the north and the south and completely halt the inter-Korean cooperation."

It will also expel personnel from the Kaesong industrial park, a joint North-South venture just inside its border. But it was not immediately clear what impact that would have on factories operating there.

The industrial estate, in which South Korean firms employ cheap North Korean labour, has long been an important source of revenue for the Pyongyang leadership.

South Korea says it plans to refer North Korea to the UN Security Council, and is seeking a unified international response to the incident.