South Korea has suspended operations at the inter-Korean Kaesong industrial complex on the border, in its strongest reaction so far to Pyongyang's nuclear and missile tests.
South Korean companies operating in the industrial complex, which was established in 2003, have started pulling out following Seoul's decision.
The closure of Kaesong industrial park surprised many Korea watchers as the complex remained functional even when relations between the countries touched extremely low points in the past.
Seoul said the closure was "unavoidable" as Pyongyang used income from the complex for funding its nuclear and ballistic missile programmes.
The South finances the zone, which is just inside North Korean borders, as a means to improve bi-lateral ties between the two countries that are technically at war with each other. The Korean War ended in 1953 with an armistice, not a peace treaty.
The complex, the only remaining symbol of cooperation between the two Koreas, produced around $500 million of goods in 2015, making it the biggest single contributor to inter-Korean trade.
The industrial complex is a major source for revenue for the impoverished North. South Korean companies pay about $100 million in wages to North Korean workers every year. The closure will directly affect about 200,000 North Korean workers, it has been estimated.
The complex houses more than 120 South Korean factories. As of Wednesday, only around 150 of the 800 South Korean managerial staff remained at the complex. South Korea's Unification Ministry said the remaining citizens were being pulled out.
"The shutdown will impact the country's economy. The Kaesong complex earnings roughly equal the amount five foreign-currency-earning entities would bring in every year," said a north Korean defector who works with the Institute for National Security Strategy in Seoul, according to the Voice of America.
When ties between the two Koreas descended to the worst in 2010 following the fatal sinking of a South Korean navy ship that killed 46 sailors, Seoul decided not to include Kaesong under the sanctions it imposed on Pyongyang.
In 2013, however, North Korea shut down the complex over joint military drills between Seoul and Washington, but reopened the facility later on.