North Korea barred entry to a joint industrial complex it shares with the South for a second day on Thursday, Seoul's Unification Ministry said, and demanded extended notice of when hundreds of South Korean workers planned to leave.
The state's KCNA news agency again threatened complete closure of the zone, a lucrative money-spinner for impoverished Pyongyang, if South Korea kept up what the agency termed its insults against the North's government.
Jittery South Korean business executives of the mostly small firms that have operations there initially interpreted the instructions from North Korea as a notice to quit, prompting South Korean financial markets to drop sharply.
(Read More: South Korea Vows Fast Response If North Strikes)
The South's Unification Ministry, which handles inter-Korean relations, denied the reports and said the North wanted to be told of scheduled plans for workers wanting to leave the zone over the next week.
"The North's request to several companies for a schedule of people returning to the South by April 10 has been distorted to say the North had requested a total pullout," the ministry said.
There are 123 South Korean businesses in the industrial park that sits north of the world's most heavily fortified border that separates the two Koreas.
The North has threatened to close the park as tensions between it, South Korea and the United States ratchet higher over Pyongyang's threat to stage a war and bomb the United States.
(Read More: How Do You Solve a Problem Like North Korea?)
Seoul's Unification Ministry said earlier that North Korea would allow 222 South Korean workers to leave the zone through the day, leaving 606 workers still inside the zone and potential hostages in any conflict.
The baffling decision by so many South Koreans to stay inside the zone appeared to reflect concerns that once left, businesses would be closed permanently or confiscated.
"It is true most people involved in Kaesong do not have that sense of urgent risk to their personal safety," said a business executive with operations there who declined to be named for fear of reprisals.
"That's been the case also during the nuclear crises and the death of Kim Jong-il. I think it's partly because nobody has been threatened before or hurt in any of the cases."
(Read More: North Korea Raises Stakes in Nuclear Standoff)
Kim Jong-il died in December 2011 and his son Kim Jong-un succeeded him. North Korea staged its third nuclear test in February, prompting new United Nations sanctions that have resulted in a month-long fusillade of threats from Pyongyang against the United States and South Korea.
South Korea has had to submit a list of those wishing entry to the complex three days in advance since North Korea shut all of its official communication lines with South Korea, the United States and the United Nations last month.
North Korea itself has not issued a statement on restricting entry but on Thursday again threatened permanent closure if Seoul kept up insulting it.
"If the South's puppet conservative group and its media continue bad-mouthing... we will be taking the stern measure of pulling out all of our workers from the Kaesong industrial zone."
That would bring production to a halt as the 50,000 North Koreans employed in the zone provide almost all of the labor force.