By Jack Kim

SEOUL - North Korea threatened on Monday to retaliate with "extreme" measures if the United Nations punished it for last month's nuclear test, with Washington saying it may put Pyongyang back on its list of states that sponsor terrorism.

US Secretary of State Hillary Clinton said on Sunday North Korea's recent activities were being scrutinised for evidence of "support for international terrorism", a designation that could subject the impoverished state to more financial sanctions.

The UN Security Council may adopt a new resolution as early as this week, but there is clear division among some members over how tough the measures against the reclusive state should be.

"Our response would be to consider consider sanctions against us as a declaration of war and answer it with extreme hardline measures," the North Korea's official Rodong Sinmun newspaper said in a commentary.

An increasingly aggressive North indicated it was gearing up for fresh moves, issuing a no-sail warning off its east coast up to 260 km (160 miles) off the Wonsan area from where it launched a missile in May and a barrage of short-range missiles in 2006.

Underscoring the divide in how to handle Pyongyang, Japanese Foreign Minister Hirofumi Nakasone called for a strong resolution to make it clear that such tests would not be forgiven, while Chinese counterpart Yang Jiechi at a meeting in Tokyo said a "balanced" resolution was needed.

Clinton said last week that Washington was seeking the strongest possible resolution.

Terrorism Blacklist

The United States removed North Korea from its terrorism blacklist in October in a bid to revive faltering six-party nuclear disarmament talks, prompting the North to take some measures to disable its nuclear facilities.

Pyongyang has since reversed those steps and said it had restarted the nuclear complex - including reprocessing nuclear fuel to obtain weapons-grade plutonium.

Many analysts believe the North's belligerence may be largely aimed at a domestic audience with autocratic leader Kim Jong-il using it to bolster his position at home with the military and to better secure the succession for his youngest son Kim Jong-un.

His eldest son, Kim Jong-nam, told Japanese television over the weekend that he would not be surprised to see his brother take over because their father was very fond of him.

Speculation has for months focused on the health of Kim Jong-il, 67, who is thought to have a stroke last year. If the youngest son does take over it would be the third generation to head the world's first communist dynasty.

Renewed tensions over North Korea's nuclear programme also coincide with the trial in recent days of two American female journalists held in Pyongyang.

Analysts say the pair, who were working for the Current TV network co-founded by former US Vice President Al Gore, have become bargaining chips in negotiations with the United States.

Clinton said it was not clear how the case would be resolved, but appealed for the two women's release, saying their case was a humanitarian issue and separate from the nuclear dossier. North Korea said the trial began on June 4 but has made no further comment on the proceedings. -Reuters