North Korea has apparently started assembling its longest-range missile and it could be ready for launch late this month, a South Korean newspaper said Friday.

Chosun Ilbo, quoting an unidentified Seoul government official, said the first and second stages of the Taepodong-2 missile had been transported by train to the launch site at Musudan-ri on the northeast coast.

"It seems that the first- and second-stage rockets are now being assembled," the official was quoted as saying.

The missile is then expected to be moved to the launch pad, put in an upright position and fuelled for test-firing, the official said, adding that the earliest it could be launched is February 25.

The date is the first anniversary of the inauguration of South Korean President Lee Myung-Bak. The North views Lee as a bitter enemy because he has taken a firmer stance on cross-border relations than his predecessors.

Chosun said increased activities by vehicles and people had been spotted at Musudan-ri but the missile is inside a plant, out of sight of satellites.

It was not possible to confirm the report. South Korean authorities refuse to comment on intelligence matters.

Analysts say a missile launch would be intended to put pressure on Lee to drop his harder line, and to persuade US President Barack Obama to make the North one of his policy priorities.

The new US administration is reviewing its policy on the nuclear-armed communist state. Secretary of State Hillary Clinton will visit Japan, South Korea and China next week and a State Department official said the North would be an important topic.

The three countries, with the United States and Russia, are trying to negotiate an end to North Korea's nuclear weapons programme. But talks are stalled by disagreements over inspections to verify atomic activities.

The Taepondong-2 could theoretically reach Alaska but blew up after 40 seconds when it was first test-fired, from Musudan-ri in July 2006.

South Korea has said any launch would bring the North increased isolation and added sanctions, while the United States said it would be provocative.

The North has responded furiously since Lee linked major economic aid to progress in nuclear disarmament.

Late last month Pyongyang announced it was scrapping all peace accords with the South, including a 1991 pact that recognised the Yellow Sea border as an interim frontier.

The North's official newspaper Rodong Sinmun reiterated Friday the border "can no longer work" and threatened a naval clash if the South intrudes into what it called North Korean waters.

"If the Lee Myung-Bak group intrudes even one inch into our divine territorial waters... our patience will explode with the anger of justice, and we will thoroughly crush the warmongers into the raw waters of the Yellow Sea," the paper said, as quoted by Seoul's Yonhap news agency.

Munhwa Ilbo newspaper said the North deployed more artillery near its sea border last year amid growing tensions.

South Korea's government has urged activists to stop launching anti-Pyongyang leaflets into the North, saying they could inflame already tense relations.

But one group said Friday it would mark the upcoming birthday of the North's leader Kim Jong-Il by launching leaflets labelling him a dictator.

The activists said they would release giant gas-filled balloons carrying 100,000 flyers and hundreds of North Korean banknotes on Monday, when the North celebrates Kim's 67th birthday.

The banknotes are designed to encourage people to pick up the leaflets despite the risk of punishment. The activists say they will ignore a warning from the Seoul government that the use of the North's currency is illegal.