11 Sep 2009, 1147 hrs IST

SEOUL, South Korea – North Korea withdrew its demand for a hefty wage hike for its workers at a joint industrial complex with South Korea, the latest conciliatory gesture that could help revive reconciliation on the divided peninsula.

Pyongyang previously demanded that Seoul increase the minimum monthly salary of $55 to $300 for some 40,000 North Korean workers employed by South Korean firms operating at the complex in the North's border city of Kaesong.

But in a sudden about-face, North Korea proposed Thursday that South Korea raise the monthly wages by 5 percent, South Korean Unification Ministry spokeswoman Lee Jong-joo told reporters. North Korea did not give any explanation for its decision.

The industrial complex, which combines South Korean capital and technology with cheap North Korean labor, is the most prominent symbol of inter-Korean cooperation.

Lee said South Korea plans to sign a deal on the wage hike with North Korea soon after consulting with more than 110 South Korean companies working in the complex, about a two-hour drive from Seoul.

The North's proposal did not mention its previous demand for a 3,000 percent increase in rent for the site to $500 million, said Lee.

The abrupt change came as Pyongyang has reached out to Seoul in recent weeks by freeing five detained South Koreans, agreeing to "energize" the joint industrial project, and restarting suspended tours for South Koreans to the North.

The conciliatory mood, however, quickly soured over the weekend when North Korea unleashed a large amount of water from its new dam into a river at the border without prior notice, sweeping six South Koreans camping and fishing at the river to their deaths.

South Korean officials urged Pyongyang to apologize for the sudden and deadly flooding.

North Korean workers are hired on a monthly salary of $70 on average, but the money goes directly into government bank accounts. The joint project gives cash-strapped North Korea one of its few legitimate sources of hard currency.

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