North Korea has dropped demands that South Korean factory owners pay a huge wage increase at a joint industrial estate, officials said on Friday, the latest peace overture from the communist state.
The concession came amid anger in the South over Pyongyang's unannounced discharge of dam water on Sunday, which caused a flash flood in a cross-border river and killed six southerners.
The North is now proposing a five-percent pay rise this year for its 40,000 workers at the Kaesong estate just north of the border, Seoul's unification ministry said.
In June Pyongyang stunned Seoul by demanding a wage rise to 300 dollars a month, from around 75 dollars currently including insurance.
The demand raised speculation the North was trying to shut down the estate, the last joint reconciliation project still operating.
"The North has proposed a maximum five percent wage hike for this year," said ministry spokeswoman Lee Jong-Joo.
Lee said Pyongyang had proposed signing a deal as soon as possible, and representatives of around 100 South Korean factory owners would do so.
After months of bellicose moves, including missile launches and a nuclear test, the North in August began making conciliatory gestures towards the United States and South Korea.
It freed two US journalists after a visit by ex-president Bill Clinton and called for direct talks with Washington on the nuclear standoff.
It also freed five South Korean detainees, eased curbs on the operation of Kaesong, sent envoys for talks with President Lee Myung-Bak and proposed a new round of family reunions.
However, last week Pyongyang also announced that its experimental enriched uranium programme -- a second way to make nuclear weapons -- is almost complete.
"Recently, North Korea has shown conciliatory gestures on one hand, while at the same time claiming progress in its uranium enrichment programme," President Lee told a security meeting.
"Such a double-faced attitude indicates the situation concerning North Korea is quite fluid."
Lee said Seoul's policy -- offering the North massive aid in return for full denuclearisation -- would remain unchanged despite the conflicting signals.
The North has called for South Korea to resume lucrative tours to its Mount Kumgang resort, which halted after soldiers shot dead a tourist in July 2008.
Some analysts believe it wants to boost revenues from the South to ease the impact of tougher United Nations sanctions imposed in June.
But the dam tragedy has again strained relations. Seoul's foreign ministry said Friday the discharge was a violation of international law.
"North Korea's move this time can be viewed as having violated customary international law," said spokesman Moon Tae-Young, adding it breached a principle that a country's use of its territory should not infringe on other countries' rights and interests.
Moon said the South would consider whether it is practicable to raise the issue internationally.
South Korea has demanded that the North apologise for and explain its release of an estimated 40 million tons of dam water into the Imjin river, sweeping away campers south of the heavily fortified frontier.
Seoul newspapers have raised suspicions of a deliberate "water attack" -- designed to pressure the South to respond to the North's overtures by resuming aid and business ventures.
Unification Minister Hyun In-Taek told parliament Wednesday the discharge was intentional but the motive was still being studied.