SEOUL, Oct 2, 2008 (AFP) - North Korea Thursday threatened to evict all South Korean staff from a joint industrial estate at Kaesong unless Seoul stops civic groups spreading cross-border propaganda, the defence ministry said.

'The North's side said that our people could not stay in Kaesong and Kumgang ... if the dropping of leaflets continues,' the ministry said in a statement on the outcome of a military meeting at the border village of Panmunjom.

The meeting, the first official contact between the two sides for eight months, ended early and without agreement.

More than 32,000 North Koreans earning around 60 dollars a month work for 79 South Korean factories at Kaesong near the west coast. Together with the Mount Kumgang resort on the east coast, it earns the North tens of millions of dollars a year.

Both developments were funded by South Korea to promote reconciliation.

A defence ministry spokesman refused to say whether the North was threatening to formally close the two projects, saying it referred to 'all South Koreans staying in the two areas.'

South Korea has already been ordered to withdraw many non-local staff from Kumgang, following a row over the shooting of a Seoul tourist there in July.

North Korean soldiers shot and killed the housewife after she strayed into a restricted zone next to a beach.

The North blamed the South for the incident and refused to let it send an investigation team, while Seoul cancelled tours to the resort.

Civic groups including defector organisations have for years floated anti-Pyongyang propaganda by balloon over the heavily fortified border.

Pool reports from Panmunjom said the North's team demanded swift action to halt the dropping of the leaflets, which they said slander leader Kim Jong-Il.