North Korea said Saturday that it would close the inter-Korean industrial complex in its border city of Gaeseong, should its “dignity” be undermined, and declared that the Korean Peninsula has entered a “state of war.”

The North’s spokesperson for the Gaeseong complex said Seoul was “seriously insulting our dignity” by claiming Pyongyang was allowing the complex to run despite escalated tensions because it was a source of foreign currency.

The statement carried by the official Korean Central News Agency apparently underlined the communist state’s anger over recent South Korean media reports, which upbraided the impoverished state for cashing in on the lucrative complex while churning out bellicose statements against Seoul.

From nixing the armistice agreement to putting its artillery at the highest level of combat readiness, Pyongyang has escalated its threats against Seoul and Washington to protest the allies’ military drills and additional sanctions for its missile and nuclear tests.

These threats were met only with tougher deterrence measures. The allies have signed a counter-provocation plan and mobilized nuclear-capable U.S. weapons such as B-2 bombers and the nuclear-powered Cheyenne submarine for their annual drills.

Saturday’s stepped-up rhetoric further ratcheted up tension and prompted a war of words between the two Koreas that still remain technically at war as the 1950-53 Korean War ended in a truce rather than a peace treaty.

“From this moment, North-South relations will be put at a state of war, and all the issues rising between the two will be dealt with in accordance to wartime regulations,” the North said in a special statement issued by the country’s government, parties and other organizations.

The statement also said the North would immediately punish even the slightest provocation hurting its dignity and sovereignty with “resolute and merciless physical actions without any prior notice.”

It also mentioned specific targets such as the U.S. mainland, Hawaii and Guam as well as 28,500 American troops on the peninsula. It also said the South Korean presidential residence and office of Cheong Wa Dae and its military bases would be devastated.

Observers said that as only North Korean leader Kim Jong-un has the authority to declare war, the statement by the social and political organizations is only another verbal threat to highlight their unity against South Korea.

During a meeting with ruling Saenuri Party officials on Saturday, Seoul’s Defense Minister Kim Kwan-jin said the possibility of a provocation by Pyongyang could not be ruled out, stressing that if provoked, the South would mobilize not only all of its military assets but also weapons from the U.S. mainland.

In a separate statement, Seoul’s Defense Ministry sought to assuage public security concerns, stressing it was maintaining water-tight military readiness, and that any provocation would be met with “thorough retaliation.”

Seoul’s Unification Ministry said the North’s claim that the bilateral ties had entered into a state of war was a follow-up measure after it put its missile and artillery units in the highest combat-ready posture last week.

“It is not new, but just the latest in a continuing series of provocative threats,” the ministry said in a press release.

The U.S. said it takes the North’s threats seriously.

“We’ve seen reports of a new and unconstructive statement from North Korea,” said Caitlin Hayden, spokeswoman for the National Security Council, according to AFP. “We take these threats seriously and remain in close contact with our South Korean allies.”

As for the North’s threat to close the joint industrial complex, experts said the North would be unable to deal with the risks associated with its shutdown. Despite such a threat, border-crossings by South Koreans working at the complex have so far proceeded without incident.

“The money raked in from the complex is crucial seed money for the North Korean leadership. On top of that, the complex hires some 54,000 North Koreans, compared with the population of around 120,000 in Gaeseong,” said Cho Bong-hyun, senior researcher at the Industrial Bank of Korea Research Institute.

“Taking into all these factors and others and given that the complex is the only means left for inter-Korean economic cooperation, it would be difficult for Pyongyang to stop it.”

North Koreans are working at the complex with a monthly average pay of $144. Through the complex, the cash-strapped country rakes in more than $90 million each year.

Huh Moon-young, a senior fellow at the state-run Korea Institute for National Unification, said that both Seoul and Pyongyang should avoid letting the tension further escalate.

“(Seoul) needs to make a rationale for Pyongyang to come forward for dialogue and help the dovish forces within the North Korean regime to raise their voices,” he said. “During such a period of heightened inter-Korean tensions, the voices of those favoring dialogue in both Seoul and Pyongyang are sacrificed.”

By Song Sang-ho (sshluck@heraldcorp.com)