North Korea attacked a South Korean warship after the South balked at its request for economic aid in return for a proposed summit, a report said Monday.

The North's request was delivered through a senior member of the South's ruling Grand National Party last December, Dong-A Ilbo newspaper reported, quoting sources familiar with Pyongyang.

It said the North demanded that the South pledge economic assistance including 300,000 tons of fertiliser before any summit between President Lee Myung-Bak and its leader Kim Jong-Il.

It also called for the establishment of an unofficial channel for inter-Korean dialogue, designating then-South Korean Labour Minister Yim Tae-Hee as dialogue partner, the paper said.

The unification ministry and the presidential office had no comment on the report.

Yim, one of Lee's close confidants, reportedly held a secret meeting with a North Korean official in Singapore late last year in an unsuccessful attempt to arrange a summit. He became chief of presidential staff last month.

Seoul, however, failed to give a clear answer to Pyongyang for months because of intense debate among its top policymakers, Dong-A said.

In February Lee said he would not reward North Korea for agreeing to hold a fence-mending summit.

In March, according to South Korean and US officials, a North Korean submarine torpedoed the corvette near the disputed sea border with the loss of 46 lives.

The first-ever summit was held in 2000 and a second in 2007, when Seoul's left-leaning leaders were practising a "sunshine" aid and engagement policy with Pyongyang.

Lee, a conservative, took office in 2008 and linked major aid to progress in the North's nuclear disarmament, sparking anger in Pyongyang. Nevertheless, the impoverished North put out peace feelers late last summer.

Last month it invited an association of South Korean relief groups for talks on the proposed opening of their permanent office in Pyongyang to monitor the distribution of aid.

But the South's unification ministry, which must by law approve all visits to the North, said Monday it has rejected the association's request to make the trip.

The South, as part of punitive measures announced in May following the warship sinking, banned most cross-border trade and trips.

"As long as the situation remains unchanged, there will be no exception," spokeswoman Lee Jong-Joo told AFP.

earlier related report
US envoy holds talks in Seoul on new N.Korea sanctions
Seoul (AFP) Aug 2, 2010 - The United States hopes new sanctions on North Korea will be strong enough to discourage "provocative activities" and encourage it to scrap its nuclear weapons programme, a senior US envoy said Monday.

Robert Einhorn said Washington wants measures "that provide strong incentives for North Korea's leaders to abide by their international obligations not to pursue any provocative activities, and fulfil completely their commitments for denuclearisation".

Einhorn, the State Department's special adviser for nonproliferation and arms control, was speaking at the start of a visit to South Korea and Japan aimed at tightening sanctions on both the North and Iran.

Seoul and Washington accuse Pyongyang of torpedoing a South Korean warship earlier this year with the loss of 46 lives, a charge it vehemently denies.

During a visit to Seoul last month, US Secretary of State Hillary Clinton announced new US sanctions on the North along with efforts to tighten existing United Nations measures.

The two allies last week held a major naval and air exercise designed to deter against cross-border aggression.

The North has threatened unspecified "strong physical measures" against the new US measures.

Einhorn is accompanied by Daniel Glaser, a senior Treasury official overseeing efforts to combat terrorist financing and financial crimes.

Speaking after a meeting with Deputy Foreign Minister Lee Yong-Joon, Einhorn said the allies should work closely together to deal with threats to international security posed by both North Korea and Iran.

"One means of addressing these challenges is to create the pressures felt by these two governments, so that they recognise it is in the best interests of their countries to meet their international obligations and forsake nuclear weapons," he told reporters.

But he said different measures may be needed for each government to persuade it "to be more reasonable", adding that Washington is still finalising new measures.

Six-party talks on the North's denuclearisation have been stalled since December 2008. In April last year the North quit the forum before staging its second nuclear weapons test a month later.

Einhorn also met Foreign Minister Yu Myung-Hwan and chief nuclear envoy Wi Sung-Lac. He was to hold a press conference later in the day.

Widespread local media reports have said that, as part of the punitive measures, the United States plans to freeze some 100 overseas bank accounts believed linked to illicit North Korean transactions.

During her visit to Seoul Clinton announced new sanctions "directed at the destabilising, illicit, and provocative policies" of the North's regime.

She also announced greater efforts under existing regulations, to freeze the North's suspect assets.

China, the North's sole major ally and economic lifeline, has not backed the findings of international investigators, who said there was overwhelming evidence that Pyongyang sank the warship.

A US State Department spokesman last week urged China to live up to its international obligations on sanctions, and use its leverage to change the North's behaviour.