The US and North Korea are reportedly close to reaching an agreement to save a crumbling nuclear deal.

South Korea's foreign minister Yu Myung-hwan said details of a compromise may soon be announced.

Indications of a breakthrough came after North Korea raised the stakes by barring UN monitors from its Yongbyon nuclear plant that makes bomb-grade plutonium.

Earlier, US officials warned that the North may be preparing for another nuclear test after it was seen moving cables and tunnelling at the site of its only previous test in October 2006.

But reports from South Korean government sources said North Korea and the US were near an agreement on verifying Pyongyang's account of its nuclear programme that would prompt Washington to soon remove it from a list of countries that sponsor terrorism.

The Washington Post said the Bush team looked set to provisionally remove the hermit nation from the State Department's terrorism blacklist.

South Korea's foreign minister said Washington will soon make a decision that will hopefully lead to removing the North from the State Department list.

"If we stall at this point, it will be difficult to jump-start the process under the new US administration," Mr Yu said.

He indicated that Washington may be about to accept a compromise by focusing initial verification on the North's known nuclear facilities and leave to a later stage undeclared installations and a suspected uranium enrichment programme.

The disarmament deal appeared to be in peril after Pyongyang, angry at not being removed from the list, vowed last month to rebuild its Yongbyon nuclear plant.

Once removed from the list, North Korea would see an end to many trade sanctions.

Japan has voiced its reservations about removing the North from the list, feeling that it may not be an appropriate move to make without first resolving a long-simmering feud over its nationals kidnapped decades ago by North Korean agents.