SEOUL: North Korea agreed Monday to lift border restrictions with South Korea to allow reunions of separated families and restart stalled tourism ventures in its latest gesture of conciliation toward Seoul after nearly 18 months of rising tensions.

The North, however, said in a separate statement it was putting its army on "special alert" because of South Korea's joint military drills with the United States this week, a sign that tension between the rival countries is still running high.

The North's official Korean Central News Agency said in a dispatch early Monday that it agreed to restart tours to the scenic Diamond Mountain resort and ancient sights in Kaesong in the North. The tours had been suspended in tensions after the inauguration of a conservative government in Seoul early last year.

The report did not say when the tours would resume.

The state news agency said the North also agreed to resume reunions of families separated by one of the world's most heavily fortified borders at Diamond Mountain before this year's annual "Chuseok" autumn harvest holiday in early October. Chuseok is one of the two biggest Korean traditional holidays celebrated in both Koreas and is equivalent to Thanksgiving in the United States.

The North said the agreement was reached with Seoul's Hyundai Group, the main South Korean investor in North Korea and followed a meeting between conglomerate Chairwoman Hyun Jung-eun and North Korean leader Kim Jong Il in Pyongyang on Sunday.

Both tours to Diamond Mountain and Kaesong had been run by Hyundai's North Korea business arm, Hyundai Asan.

Kim had "a cordial talk with Hyun" and "complied with all her requests," the statement said.

Hyundai Asan in Seoul said it was aware of the North's announcement but couldn't immediately confirm it.

The agreement was seen as a conciliatory gesture toward Seoul and Washington amid the standoff over its nuclear weapons program.

On Thursday, the North freed a Hyundai worker whom it had detained for months for allegedly denouncing the communist country's political system. Pyongyang accused the worker of denouncing North Korea's government. It also followed the North's release of two jailed U.S. journalists after former President Bill Clinton made a surprise trip to Pyongyang.

Meanwhile, the North said Monday that its military will be on "special alert" because of South Korea's annual computer-simulated war games with the U.S. that started Monday.

The Supreme Command of the (North) Korean People's Army said in a statement that its troops and the entire nation would go on "special alert" starting Monday, calling the drills "a blatant challenge and grave threat" to the peace on the Korean peninsula.

The statement, carried by KCNA, said the North would retaliate mercilessly at the "slightest military provocation" from South Korea and the U.S.

The North sees the exercises as preparation for an invasion, but the U.S. and South Korea say the maneuvers are purely defensive.