Stuart Levey, the US Treasury's undersecretary for terrorism and financial intelligence, said his government was extremely concerned about Pyongyang's production of large amounts of high-quality fake US bills.

"You have to come to the conclusion that the counterfeit is supporting the proliferation," he said.

Levey said the high-quality counterfeits, also known as Supernotes, were eventually laundered to fund illicit activities of the reclusive Stalinist regime.

"There are a variety of ways that counterfeit currency can be put into legitimate financial system and ultimately laundered so it produces value for the government of North Korea," he said.

"It's something that we take extraordinarily seriously," he said, declining to put a value to the fake notes that have been distributed.

Last week the United States blacklisted eight North Korean entities as proliferators of weapons of mass destruction and froze whatever assets they had under US jurisdiction.

It also prohibited all transactions between US citizens and the entities, according to a statement from the Treasury Department.

The statement said the move was part of a US effort to combat unconventional weapons trafficking "by blocking the property of entities and individuals that engage in proliferation activities and their support networks."

Washington has also sought the extradition of the head of an Irish Republican Army splinter group charged with conspiring with Pyongyang to distribute bogus US notes in eastern Europe and Britain.

US President George W. Bush has introduced rules imposing strong financial sanctions against not only weapons of mass destruction but also entities and individuals providing support or services to proliferators.

North Korea claims to have produced the atomic bomb, and says it needs the weapons to fight off the threat of aggression from the United States.

Six-nation talks aimed at getting Pyongyang to abandon its nuclear ambitions have so far made little concrete progress. Another round is due to start in Beijing next month.

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