NEW YORK (AFP) - The United States on Monday slapped sanctions on North Korea's primary foreign exchange bank as it bids to force the isolated nation to abandon its nuclear program.

The Treasury Department will impose sanctions on the Foreign Trade Bank of North Korea after Pyongyang flouted international resolutions and conducted its third nuclear test last month, US national security advisor Tom Donilon said.

The United States will "continue to work with allies and partners to tighten national and international sanctions to impede North Korea's nuclear and missile programs," Mr Donilon told the Asia Society in New York.

The announcement came as South Korea and the United States launched joint drills Monday involving thousands of troops, defying North Korea's apocalyptic threat to repudiate the 60-year-old Korean War armistice in retaliation.

The start of the two-week "Key Resolve" exercise follows a week of escalating tensions on the Korean peninsula, with Pyongyang also threatening nuclear war over UN sanctions.

Mr Donilon called such statements "highly provocative" but reaffirmed that Washington was "committed to the defense of our homeland and our allies.

"North Korea's claims may be hyperbolic - but as to the policy of the United States, there should be no doubt - we will draw upon the full range of our capabilities to protect against, and to respond to, the threat posed to us and to our allies by North Korea." He also reiterated that Washington was willing to hold "authentic negotiations with North Korea," but said it "refuses to reward bad North Korean behavior." "To get the assistance it desperately needs and the respect it claims it wants, North Korea will have to change course," he said.

"No country, including China, should conduct 'business as usual' with a North Korea that threatens its neighbours. China's interest in stability on the Korean Peninsula argues for a clear path to ending North Korea's nuclear program," he stressed.