Under the accord, which followed a meeting of economic officials in the North Korean capital, the two sides will open two roads, one across the western part of the inter-Korean border and the other in the east.

They will also test-run two railway systems alongside the two roads, officials from both sides announced on Saturday

The two sides also agreed to set up by the end of the month a joint agency to run an industrial park being built in North Korea's Kaesong city near the border and appoint a South Korean to oversee it.

The sprawling park, mainly to house hundreds of South Korean garment and other labour-intensive plants, will be reached by the western cross-border transport links.

Electricity for the complex will come from the South after the state-run Korea Electric Power Corp. completes building the necessary powerlines by late September.

South and North Korean officials at the Pyongyang meeting also said they needed to speed up work on a demonstration complex in the park to ensure that South Korean firms move in and begin production, officials from Seoul said.

South Korean officials also said they agreed to give 400,000 tonnes of rice aid to the North this year.

Hot line

The breakthrough is expected to expand cooperation and contribute to stability on the peninsula, Yonhap news agency said.

The agreement at the Pyongyang economic talks followed a breakthrough on Friday in separate military talks in a South Korean resort where the two sides agreed to ease tension along the world's last Cold War frontier.

General-level officers of the Koreas agreed to set up a hot line and to avoid accidental armed clashes in the disputed western sea border.

The two Koreas are still technically at war as they have yet to sign a peace treaty to replace an armistice that halted the 1950-53 Korean War.