SEOUL (AFP/Reuters) - North Korea warned Tuesday that South Korean-US war games this month would torpedo efforts to rid the peninsula of nuclear weapons, and vowed to strengthen its atomic arsenal if necessary. Despite tensions over the exercise the two Koreas went ahead with talks on ways to ease business at their jointly-run Kaesong factory estate, a valuable revenue source for the sanctions-hit North. The March 8-18 exercise comes at a time when the international community is growing more vocal than ever before calling for a settlement of the nuclear issue, the official Korean Central News Agency (KCNA) said in a commentary. Obviously, this (exercise) is a deliberate attempt to disturb peace on the peninsula and torpedo the process for its denuclearisation. The Key Resolve/Foal Eagle exercise will draw 10,000 US troops stationed in South Korea plus 8,000 from abroad, and an undisclosed number of South Korean troops. KCNA said such exercises would drive the process for the denuclearisation of the peninsula to a collapse. The reality goes to prove how urgent and crucial the conclusion of a peace treaty and the termination of the hostile relations are for finding a solution to the nuclear issue on the peninsula, it said. Denuclearisation can never take even a step forward as long as North Korea and the US remain technically at war and the US threat of a nuclear conflict remains, it said. In a speech to the United Nations-backed Conference on Disarmament in Geneva, North Korean diplomat Jon Yong Ryong said the standoff over its nuclear programme should be settled through direct talks with the US, but first Washington must drop what it called its hostile policies. He rejected South Koreas appeal for it to resume six-party talks. It is a pipedream to expect that the DPRK will dismantle its nuclear programme without the US dropping its hostile policy towards the DPRK, he said. Jon, first secretary at North Koreas diplomatic mission to the UN in Geneva, said North Korea was boosting its nuclear deterrent. This had helped preserve peace and stability in the divided Korean peninsula and in northeast Asia. He rejected as provocation an appeal by South Koreas Deputy Foreign Minister who urged Pyongyang to return to six-party talks, declaring a nuclear North Korea was unacceptable. Cho Hyun, South Koreas Deputy Minister for Multilateral and Global Affairs, said his government would pursue a two-track approach towards North Korea, combining dialogue and sanctions. The Republic of Korea maintains the firm position that a nuclear North Korea will not be tolerated, he said in a speech. North Korea and South Korea are both members of the 65-nation body. Six-party talks are the most viable framework for resolving the North Korean nuclear issue, Cho said, adding: We urge North Korea to promptly return to the six-party talks and show a sincere attitude towards denuclearisation. UN sanctions and a botched currency move that nearly halted commerce late last year have increased pressure on the destitute North.