But since then, the six-nation denuclearisation talks have failed and, following the North's second nuclear test at the end of May, the prospect for rapprochement vanished.
"Obviously they were taken off of the list for a purpose, and that purpose is being thwarted by their actions," Clinton said.
Coming off the list gave North Korea access to international finance and allowed some trade sanctions to be lifted. Others remained following the North's first nuclear test in 2006.
Clinton said that the US plans to work hard to stop the flow of money into the country.
The UN security council is presently debating a resolution that would broaden sanctions on North Korea.
Clinton suggested the resolution would be backed by China and Russia, which had both used their veto powers to resist previous measures.
The latest tension between the US and North Korea coincides with the trial of two American journalists working for the Current TV network and being held in Pyongyang.
Some analysts say the pair are being used as bargaining chips between the two countries.
But Clinton separated the case of the journalists, which she called a humanitarian issue, with the nuclear issue.
North Korea withdrew from the Nuclear Non-Proliferation Treaty in 2003.