Yonhap news agency, quoting unnamed Seoul officials, said the January 27 revision of the law paved the way for "Korean compatriots living outside the DPRK (North Korea)" to invest in the Rason free-trade zone.

In 1999 the North revised a law governing Rason to ban South Korean investors from the zone, Yonhap said.

The latest revision seeks to lure them and other foreigners back in, by reducing taxes and simplifying regulations, it said.

Rason, which joins Rajin and Sonbong towns, was created in December 1991 as the poor communist state's first free-trade zone.

Scant foreign investment has materialised from the zone, amid its lack of infrastructure and sanctions imposed on the nuclear-armed communist state.

In recent years the North has begun trying to revive Rason, signing an accord with Russia to rebuild its railways and port. China has also been said to be exploring investment opportunities there.

North Korean leader Kim Jong-Il paid his first visit to Rason in December and parliament later designated Rason as a municipality, upgrading its status.

The North has been under toughened UN sanctions since it quit six-nation nuclear disarmament talks last April, a month before its second atomic test.

Under pressure to return to the six-nation talks, the North has demanded the lifting of UN sanctions as well as a US commitment to talks on a peace treaty to replace the armistice that ended the 1950-53 Korean War.

The Seoul newspaper JoongAng Ilbo, citing an unnamed source in Beijing, Saturday reported that the North Korea had internally decided to return to six-party nuclear disarmament talks in early April.

Officials in Seoul could not confirm the report.

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