The two sides are talking, but still wary

According to South Korean reports, delegates from the north cited the need to protect military sensibilities and conserve the environment as obstacles to building the road.

South Korea wants to increase visitor numbers to the struggling tourist resort in Mount Kumgang, which is currently only accessible from the south by cruise ship.

It also wants Pyongyang to allow the construction of a golf course, casino and other facilities near the resort to attract more visitors.

The two sides were meeting in the resort, which first opened to South Korean tourists three years ago and had had symbolised reconciliation efforts between the two.

The venture is still the only opportunity for most South Koreans to visit the North as the two countries still remain technically at war.

The talks were the first in a series of exchanges between the two Koreas this month, following last month's ministerial meetings which ended a six-month boycott of official dialogue by the North.

Heavy losses

The South Korean company which runs the cruise tours, Hyundai Asan, scaled back the project this year because it was losing hundreds of millions of dollars. The company had paid $12m a month to the North in return for exclusive rights to operate the project but it was forced to cut this back because of mounting losses and a drop in tourist numbers.

Opening a land route across the two countries' heavily fortified frontier, saving time and money, would significantly boost the tourism venture. South Korean official had hoped that an existing unpaved road linking the two countries could be opened by this year, with a wider expressway built next year.