"The leaders of South and North Korea should meet under the principles that there will be no price for a summit," President Lee Myung-Bak told a cabinet meeting.

Lee last week told the BBC a summit could take place this year. He reiterated Tuesday he is willing to meet the North's leader Kim Jong-Il at any time but "only under firm principles", according to his spokesman.

Chosun Ilbo newspaper, in the latest of a spate of media reports, said a summit could be held in June or August and the South may resume desperately needed fertiliser shipments to its neighbour beforehand.

Speculation about a summit, which would be the third, following leaders' meetings in 2000 and 2007, has intensified despite military tensions.

Last week the North fired around 370 shells over three days near its disputed maritime frontier with South Korea after declaring "no sail" zones.

Seoul's military was watching Tuesday for possible short-range missile tests after the North banned shipping from several more coastal zones elsewhere.

Several analysts believe the North is raising tensions to support its claim that a formal pact is necessary to end the 1950-53 war, which finished only in an armistice.

The North says the United States must agree to hold talks about a peace pact before it returns to six-party nuclear disarmament negotiations. It quit the forum last April, a month before staging a second nuclear test.

It also demands that United Nations sanctions be lifted before it comes back.

"We and the United States still remain technically at war. Nobody can guarantee that there will be no artillery fired in a war on the Korean peninsula, where (only) the armistice continues," said the communist party newspaper Rodong Sinmun on Tuesday.

The North, with its latest demands, "has, again, put a great stumbling block in its path towards denuclearisation", South Korea's Unification Minister Hyun In-Taek said.

"By making such claims that defy the expectations of the international community, it seems to be stepping further away from the denuclearisation talks," Hyun, the chief policymaker on the North, said in a speech.

"As North Korea continues to remain unclear about whether it will return to the six-party talks, we cannot stop raising a fundamental question on its commitment to denuclearise itself."

The talks group the two Koreas, China, Russia, the United States and Japan.

The minister also criticised the North's "repeated provocations" at sea but said North-South relations were nevertheless slowly getting back on track.

But on the nuclear issue "we are still stuck in a deep, dark tunnel", he said.

Despite the recent sabre-rattling, the sanctions-hit North is pushing to upgrade or restart business projects with its vastly wealthier capitalist neighbour.

The two sides held talks Monday about ways to boost their joint industrial estate at Kaseong, just north of the heavily fortified border, but failed to agree.

The North demanded negotiations on pay rises at Kaesong, where 42,000 of its people work at 110 South Korea-funded plants -- earning millions of dollars a year in hard currency for Pyongyang.

The South says talks should first focus on easier cross-border access to Kaesong and on housing for Northern workers there.

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