Pyongyang has demanded that the number of South Koreans allowed to stay without restriction in the estate be limited to 880 - a fifth of the 4,200 people with permits to travel to or stay in the enclave.
More than 32,000 North Koreans work for 83 South Korean-owned factories at Kaesong, along with some 1,500 South Koreans, earning the impoverished North tens of millions of dollars a year.
The North's official KCNA news agency said the border restriction was the result of "the evermore undisguised anti-DPRK [North Korea] confrontational racket of the South Korean puppet authorities".
The first regular train service between North and South Korea in half a century began in December 2007, and was hailed as a landmark in reconciliation between the rival nations.
But recent months have seen relations between the two sides plummet.
Tensions have apparently been fuelled by airdrops of anti-North Korean leaflets, sent across the border on helium balloons launched by South Korean activists.
North Korea also criticised comments by Lee Myung-Bak, the South Korean president, during a recent visit to the US.
Lee reportedly said that his ultimate aim was the reunification of North and South Korean under a liberal democratic system.
Kim 'visits' air force
North Korean media also said on Sunday that Kim Jong-il, the North Korean leader, had inspected an air force unit.
|North Korean state media said Kim Jong-il inspected an air force unit [AFP]
He reportedly praised the air force crew for their "diligence" and urged them to remain "disciplined in the face of enemy aggression".
The report is the latest from Pyongyang in recent weeks portraying Kim as busy and active.
But South Korean and US officials say Kim suffered a stroke in August.
He has not been seen in public in months and has missed several key events.
North Korea denies claims of ill health, but no definitive proof of the leader, such as recent video footage, has been released.
Sunday's report said Kim toured air force facilities and observed training, accompanied by General Ri Pyong Chol, the commander of the air force, but did not say where or when the visit took place.