SEOUL (AFP) - North Korea on Wednesday cancelled an invitation to UN chief Ban Ki Moon to visit an industrial zone inside the isolated state, in an abrupt move that Ban deplored as "deeply regrettable".

The decision comes after the UN chief this week urged North Korea to avoid any actions that might escalate military tensions, after it successfully test-fired a submarine-launched ballistic missile (SLBM).

He said that via "diplomatic channels", North Korea had rescinded its invitation to the Kaesong zone, which is a key earner for the cash-strapped state but a perennial source of tension with South Korea.

"No explanation was given for this last-minute change," the UN chief, a former foreign minister of South Korea, told a forum in Seoul. "This decision by Pyongyang is deeply regrettable," he said.

"However, I as the secretary-general of the United Nations, will not spare any efforts to encourage the DPRK (North Korea) to work with the international community for peace and stability on the Korean peninsula and beyond."

South Korea's Unification Ministry also expressed "regret" at the reversal. "The government again urges North Korea to turn away from the path for isolation and to grasp the hands reached out by the United Nations and international community for dialogue and reconciliation," ministry spokesman Lim Byeong Cheol told reporters.

Ban had planned to travel on Thursday to the industrial estate, a joint enterprise between Pyongyang and Seoul which lies 10km over the border inside North Korea. It hosts around 120 South Korean firms employing some 53,000 North Korean workers.

Had the visit gone ahead, Ban would have become the first UN secretary-general to set foot in the communist state for more than 20 years, since Boutros Boutros-Ghali in 1993.

Unlike Boutros-Ghali, who met the North's then-leader Kim Il Sung to discuss tensions over its nuclear ambitions, Ban was not expected to have any high-level talks during his brief visit to Kaesong.

- Wages and weaponry in spotlight -

Born out of a "sunshine" reconciliation policy initiated in the late 1990s by South Korea's then president, Kaesong was established in 2004 as a rare symbol of inter-Korean cooperation.

Ban, who has been visiting South Korea this week, said on Tuesday that the Kaesong project was a "win-win model for both Koreas". He went to Kaesong with a delegation of foreign diplomats in 2006 when he was South Korea's foreign minister.

The cancellation comes at a time when the two Koreas are again mired in a dispute over wages at Kaesong, with Pyongyang insisting on unilaterally imposing a pay rise for its workers.

Impoverished North Korea keeps the hard-currency wages and passes on a small fraction - in local currency - to its workers. Aside from the Kaesong dispute, tensions have again intensified after North Korea's test of the SLBM, which was in defiance of a UN ban on the country testing ballistic missile technology.

A fully developed SLBM capability would take the North Korean nuclear threat to a new level, allowing deployment far beyond the peninsula and the potential to retaliate in the event of a nuclear attack.

"If the DPRK's activities continue, we could see more arms competition and rising tension throughout this region," Ban said in Seoul on Tuesday, urging North Korea "to prevent escalation" and resume talks.

At the same forum on Tuesday, South Korean President Park Geun Hye said North Korean belligerence was threatening stability across the Asian region and remarked on "its reign of terror" with high-level purges.

South Korea's intelligence agency reported last week that North Korea's defence minister had been purged and most likely executed for insubordination and dozing off during a formal military rally.

Analysts said that in the context of rising international concern over its conduct, North Korea had seemingly decided that Ban's visit to the industrial zone was not worth it.

"North Korea was apparently concerned that Ban's trip to Kaesong might have exposed itself to greater pressure from the outside world to change its course," Kim Yeon Chul of Inje University in South Korea said.