North Korea has ordered aid agencies, including the UN's World Food Programme and non-governmental organisations, to stop providing emergency food aid and wants foreign NGO workers out by the end of the year.
Pyongyang wants their work continued by North Korean staff - a move aid workers fear could set back efforts to help starving North Koreans by 10 years.
It also wants aid agencies to switch to providing longer-term development aid instead of emergency food aid, a move likely to provoke a storm of controversy over the role of foreign aid organisations in the secretive Stalinist enclave.
'There's always a chance we'll have to go, but I'm optimistic we won't have to close down,' said Richard Ragan, the UN programme's country manager in North Korea.
Shifting from emergency relief to development aid is politically explosive. Donors such as the United States and Japan have committed to emergency food aid in North Korea, but baulk at development assistance as they fear it might help to prop up Kim Jong-il's rule, which US President George W. Bush describes as a 'rogue regime'.
Aid experts said increasingly warm bilateral relations between South and North Korea were the reason for the ultimatum.