North Korea has stopped South Koreans from crossing the border to work at the jointly run Kaesong industrial zone, for the first time since 2009.
Seoul said about 800 South Koreans who had stayed overnight at the complex were being allowed to return.
Kaesong is a crucial revenue source for the North, which has not indicated how long the entry ban will last.
Pyongyang has threatened the South and the US in recent weeks, and has vowed to restart a mothballed nuclear plant.
The border into Kaesong is the last functioning crossing between the two Koreas, and the complex is the last significant symbol of co-operation.
Kaesong Industrial Complex
- Launched in 2003, largely financed by the South to increase co-operation
- More than 120 factories employ North Koreans in manufacturing industries, with goods exported to the South
- Complex as a whole produced $470m worth of goods in 2012 – the biggest contributor to inter-Korean trade
- South Korean companies pay more than $80m a year in wages to North Korean workers – the complex is an important source of revenue for Pyongyang
The industrial park is home to more than 120 factories that employ more than 50,000 North Koreans and several hundred managers from the South.
Permission is granted on a daily basis for workers to cross into the complex, where they can stay overnight. More than 850 South Koreans were at Kaesong when the ban was announced, and very few have returned. The BBC’s Lucy Williamson, at the border, says many have decided not to return immediately because they fear they will not be allowed back in.
One South Korean worker who returned from the complex said some of his colleagues had been held up because they had no transport.
“Other people couldn’t return because they were supposed to be taken home on trucks scheduled to carry supplies into North Korea, but the trucks couldn’t get into the North,” said the worker.
The South’s Unification Ministry spokesman Kim Hyung-seok told reporters he wanted the ban to be lifted immediately.
“Ensuring the safety of our citizens is our top priority and the South Korean government will take necessary measures based on this principle,” he said.
Seoul says the South’s firms pay $80m in wages each year to workers in the North. The complex sustains the city of Kaesong, with an estimated population of 300,000. North Korea threatened to shut down the Kaesong complex last week. It has also threatened attacks on US military bases in Asia and South Korean border islands.
On Tuesday it said it planned to restart its mothballed reactor at Yongbyon, which is the source of plutonium for its nuclear weapons programme. The North has apparently been angered by UN sanctions imposed after a recent nuclear test.
Its statements against the US seem to be in response to the current round of US-South Korea military drills.
On Tuesday, US Secretary of State John Kerry called recent North Korean actions:
“dangerous” and “reckless”.
“Let me be perfectly clear here today. The United States will defend and protect ourselves and our treaty ally, the Republic of Korea [South Korea],” he said after talks with his South Korean counterpart Yun Byung-se.
Investigative journalist John Sweeney says North Korea has “worst government in the world” The US has recently made a series of high-profile flights of advanced aircraft over South Korea. The sorties included stealth fighters and nuclear-capable B-52 bombers.
Officials have also confirmed that the USS John McCain, an Aegis-class destroyer capable of intercepting missiles, has been positioned off the Korean peninsula. A second destroyer, the USS Decatur, has been sent to the region.
China, the North’s only powerful ally, said it had despatched officials on Tuesday to hold talks with ambassadors from North Korea, South Korea and the US. Foreign ministry spokesman Hong Lei said the officials had expressed “serious concern” about the current situation.
“China believes all sides must remain calm and exercise restraint and not take actions which are mutually provocative and must certainly not take actions which will worsen the situation,” he said.
On Tuesday UN Secretary-General Ban Ki-moon warned that the crisis had “gone too far” and called for urgent talks with the North.
“Things must begin to calm down, there is no need for the DPRK [North Korea] to be on a collision course with the international community. Nuclear threats are not a game,” Mr Ban said.
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Contributed by Lucy Williamson of bbc.co.uk.