'I believe North Korea should revamp its banking system to integrate with international norms. Its banking relations with the outside world should be normalised,' he said in an interview.

'It would be very helpful to improving relations in other areas. We are more than willing to help,' he said, adding that it could discussed at a ministerial level.

North Korea's ongoing banking problems are expected to emerge when Pyongyang meets its six-nation partners in a fresh round of talks on dismantling its nuclear programme next week.

A US Treasury Department crackdown on Pyongyang's three decades of alleged criminal involvement with Macau's Banco Delta led to the freezing of US$25 million and effectively turned it into an international banking pariah. The money was recently returned after months of fraught diplomacy in the wake of a landmark six-nation agreement in February paving the way for a nuclear-free North Korea.

South Korean officials fear privately, however, that the ongoing international impact of the crackdown and sanctions threatens to scupper significant signs of progress with North Korea on a number of fronts.

Fuel-oil aid shipments will start leaving South Korea today as North Korean officials prepare to shut down their nuclear reactor at Yongbyon. The prospect of a formal end to the Korean war and new diplomatic ties with South Korea, Japan and the US could accompany further progress. A north-south summit - not attempted since 2000 - is also considered a possibility in the short-term.

'The Banco Delta issue has had a great impact on North Korea, especially its relations with the outside world. It is not just about relations with the US, but with the whole international community,' Mr Lee said.

'It has greatly hurt the ego and pride of the North Korean regime. The resolution of this issue is a very important process.'

Mr Lee said he had not heard directly from Pyongyang on its specific banking problems, but he expected an update at the six-party talks in Beijing next Wednesday.

He said he hoped to see further two-way discussions between Washington and Pyongyang to ease financial tensions.

Mr Lee also said there were no concrete plans for a north-south summit but acknowledged it would be a very positive development in the current fluid climate.

'I believe it's a very useful tool. Now that we are in the process of resolving the nuclear stalemate, we need to have such discussions.'

Talk of a summit is rising across Seoul as campaigning intensifies ahead of the South Korean presidential election at the end of the year.

Former president Kim Dae-jung won the Nobel Peace Prize after a summit with Mr Kim in 2000 - an event later shrouded in controversy after it emerged tens of millions of dollars had been secretly funnelled to the north ahead of the summit.