The North Korean warning came as a maritime skirmish heightened tensions on the peninsula, just hours after Pyongyang announced it was withdrawing athletes from the World Student Games starting in South Korea later this week.

US and South Korean military authorities also launched their 12-day joint war games Monday as scheduled, despite Pyongyang's protests against the massive military maneuvres.

Pyongyang has denounced US-South Korean military drills as part of Washington's hostile policy which should be dropped to settle the nuclear crisis.

"If the US does not express its will to make a switchover in its policy towards the DPRK (North Korea), the DPRK will have no option but to declare that it can not dismantle its nuclear deterrent force at the talks," the state-run Korean Central News Agency (KCNA) said.

North Korea is due to meet the United States, Japan, China, Russia and South Korea in Beijing on August 27-29 for talks aimed at resolving a 10-month crisis over its nuclear program.

KCNA said Washington could prove it had changed its policy towards North Korea by agreeing to a non-aggression pact and diplomatic normalization, and pledging not to hinder Pyongyang's international trade.

A foreign ministry statement released on KCNA last week said Pyongyang would make these demands at the talks, which were set up after weeks of intense Chinese-led diplomacy.

The United States has already rejected a non-aggression pact, although Secretary of State Colin Powell has suggested there may be a way for the US Congress to take note of a less formal arrangement.

The nuclear crisis erupted in October last year when the United States accused Pyongyang of reneging on a 1994 bilateral nuclear accord by setting up a clandestine program based on enriched uranium.

North Korea, which says its needs nuclear weapons to defend itself against the United States, soon expelled UN nuclear inspectors and withdrew from the treaty.

It has since claimed to have reprocessed 8,000 spent fuel rods at its nuclear plant at Yongbyon.

In an illustration of the volatile security situation on the peninsula, South Korean warships fired warning shots Monday to drive back a North Korean boat violating southern territorial waters in the Yellow Sea, military authorities said.

A fleet of South Korean patrol boats fired five 40-milimeter gun shots at the North Korean ship which returned to the North six minutes later, officials said. There were no casualties, they added.

It was the 15th maritime border violation by North Korea this year.

North Korea abruptly cancelled its participation in the World Student Games due to get underway in the city of Daegu on Thursday, saying that South Korea had become too dangerous for its citizens.

The semi-official Committee for Peaceful Unification of the Fatherland said it had taken the decision into anti-North Korean protests carried out by right-wing groups in South Korea last week.

"It has become obvious that we can not send our athletes to the university games in the South which has become a dangerous place where people do harm to the safety and dignity of their own brothers," it said in a statement.

Meanwhile, US and South Korean troops began joint war games Monday in the face of objections from North Korea, which branded them a rehearsal for a pre-emptive strike on the communist country.

The annual Ulchi Focus Lens exercise, focusing on computerized war simulations with North Korea, involves 14,500 US forces based in and out of South Korea, US military authorities here said.

The United States stations 37,000 troops in South Korea according to a mutual defense treaty signed after the 1950-1953 Korean War.

The two Koreas remain technically at war since the conflict which ended in an armistice, rather than a peace treaty.

WAR.WIRE