North Korean Government used Kaesong workers' wages for weapons, Kim Jong-un's luxuries, South Korea says

South Korea says 70 per cent of the wages and other fees paid for the now-suspended Kaesong industrial project run jointly with North Korea was diverted for use in Pyongyang's weapons program and to buy luxury goods for its leader.

Key points:

• Announcement is first admission from South the North's workers received little of their wages
• South says money was channelled through mysterious Office 39
• The shutting of Kaesong is a "declaration of war", North says

It is the first time the South has formally acknowledged that the 55,000 North Korean workers at the Kaesong complex received little of the average $US160 ($225) a month wage they were paid.

South Korea suspended the project on Wednesdayin reaction to the North's long-range rocket launch on February 7, saying it would no longer allow the funds paid to Kaesong to be used in the North's missile and nuclear programs.

North Korea conducted its fourth nuclear test last month.

The North called South Korea's decision to suspend operations "a declaration of war" and ejected all South Korean workers on Thursday, freezing the assets of the South Korean firms.

"The wages for the North's workers and other fees were paid in cash in US dollars to the North's authorities and not to the workers," South Korea's Unification Ministry said.

"This is believed to be channelled in the same way as other foreign currency it earned."

North channelled funds through mysterious Office 39

The Ministry said the North's government keeps the cash and it is managed by the ruling Workers' Party's Office 39 and other agencies.

The Ministry said it had confirmed the movement of the money through various sources but did not specify them.

Office 39 is widely believed to exist to finance the luxurious lifestyle of Kim Jong-un and is also believed to be part of the North's agencies that fund the country's missile and nuclear program.

Kaesong's North Korean workers were given a taste of a different life working for the 124 mostly small- and medium-sized manufacturers that operated there, about 54 kilometre's north-west of Seoul.

The minimum wage for North Korean workers was about $US70 a month, although the companies paid more than double that after overtime and bonuses, despite that payment being low compared to the average cost of labour in the South.

The Kaesong project was borne out of the first summit meeting of the rival Koreas in 2000, where their leaders pledged reconciliation and cooperation.

It was the last remaining symbol of that effort in the volatile North-South ties over the years.

Kaesong had been shut only once before, for five months in 2013, amid heightened tensions following North Korea's third nuclear test.

(Source : abc.net.au)

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