But Prime Minister John Howard said the situation nevertheless remained "quite dangerous" and he urged North Korea not to pull out of international talks on its nuclear program.

North Korea confirmed publicly Thursday that it had nuclear weapons to protect itself against a feared US attack and would indefinitely boycott the multilateral talks involving China, Russia, Japan, the United States and South Korea.

Howard said the North Korean statement was "disconcerting" and "a reminder of the kind of country that we're dealing with".

But he added: "There's an element of bluff, I'm sure. There's an element of exaggeration".

"Even if she does have some nuclear capacity, that's probably being exaggerated, but nobody should imagine this is anything other than a real problem and one that has to be handled with a great deal of skill and balance," he said in a television interview.

"I'm not absolutely certain that the six-power talks have collapsed and we will renew our efforts, particularly with the Chinese and the Americans and the Japanese to see if we can't re-establish those six-power talks," he said.

Howard said North Korea's latest move was a reminder that the world was not dealing with a regime which, although authoritarian, was keen to be a goodwill citizen.

"It's a quite dangerous situation," he said.

Australia, one of Washington's closest allies, established diplomatic relations with North Korea in 2000 and has sent top level envoys to the Stalinist state as part of efforts to entice Pyongyang to join and remain in the six-party nuclear talks.

Foreign Minister Alexander Downer, who himself visited Pyongyang last August, urged North Korea not to quit the negotiations.

"Our early response to this statement would be that North Koreans would be best to resume the six party talks, go back to the table and negotiate a successful settlement," he said.

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