By Park Chan-Kyong

SEOUL - South Korean firms at an inter-Korean industrial estate on Friday rejected North Korea's demands for huge rent and wage increases, saying they threaten the future of the reconciliation project.

The North made the demands Thursday at a meeting already overshadowed by its nuclear test and a sharp rise in border tensions, after Pyongyang scrapped the armistice in force on the peninsula.

The UN Security Council was expected Friday to adopt tougher sanctions targeting North Korea's atomic and missile programmes in response to the May 25 test.

Fox News said US intelligence officials have warned President Barack Obama that the North would respond to the sanctions resolution with another nuclear test. South Korea's defence ministry said Friday such a test was possible.

"The Kaesong industrial zone, which was born from the desire for national reconciliation and co-prosperity, now faces a critical moment because of political tensions," the 106 firms at the estate said in a joint statement.

They said they would not accept a "unilateral" demand made by the North in breach of a contract endorsed by both governments, and called for Seoul's help including emergency loans to cover "unbearable operational losses."

The North wants a rise in wages for its 40,000 workers at the showpiece Kaesong complex just north of the border to US$300 ($435.57) per month from around US$75 currently.

It also demands an increase in rent for the Seoul-funded estate to US$500 million, compared to the current US$16 million for a 50-year contract.

Analysts said they were unsure whether Pyongyang's real aim was to shut down Kaesong, or whether it is still open to negotiation.

"By making a demand which the South finds hard to accept, Pyongyang seems to be moving to shut down Kaesong, holding the South Korean government responsible for the closure," Yang Moo-Jin of Seoul's University of North Korean Studies told AFP.

Kim Yong-Hyun, of Dongguk University, said Pyongyang could not make the first move to shut down Kaesong because the project was initiated by its leader Kim Jong-Il.

"By setting new talks, the North is saying, 'We're doing all we can. It's your responsibility if things go bad'," he told Yonhap news agency.

At Thursday's meeting Seoul again raised the case of a South Korean manager at Kaesong who has been detained by the North since March 30, but failed to gain access to him.

The man was held for allegedly criticising the North's political system and trying to persuade a female worker to defect.

The North is bitterly at odds with South Korea's conservative administration, which rolled back the "sunshine" engagement policy followed by previous liberal governments.

It has previously expelled hundreds of managers from Kaesong and intermittently restricted access.

Pyongyang said Thursday there was no longer any reason to give Kaesong's firms "preferential measures" because the current Seoul government refuses to honour the 2000 summit declaration which led to the project.

The impoverished communist North received US$26 million from South Korean firms last year in wage payments.

Some analysts say it may be willing to forgo the cash because it fears the effects of exposing its workers to the South Korean lifestyle.

The two sides agreed to meet again on June 19.

Factory owners, whose companies produce a variety of goods such as garments, kitchenware and watches, already face a decline in business amid the political uncertainties and the economic downturn.

The South's chief delegate to the talks said late Thursday that judging from the sums it is asking, North Korea may seem like it is telling South Korean firms to leave.

But Kim said his understanding was "that the North Koreans in the field want to develop the Kaesong industrial park and are willing to negotiate."