Talks on dismantling North Korea's nuclear arms program are deadlocked with no sign of progress, Japan's envoy said Thursday, citing the North's refusal to abandon its demand that the U.S. lift financial restrictions.

The envoy, Kenichiro Sasae, said the North's refusal to address its disarmament was "extremely regrettable," and that one-on-one meetings between the U.S. and the reclusive communist nation have not changed the "confrontational" nature of the dialogue.

"The situation remains severe and there is no prospect for a breakthrough," Sasae said after the fourth day of six-nation talks in Beijing. "North Korea's claims and its position on financial issues are very firm and that is the biggest cause of the difficulty."

North Korean officials are still angry about Washington's blacklisting of a Macau bank in 2005 for its complicity in North Korea's alleged illegal financial activity, including money laundering the counterfeiting U.S. currency.

Complete coverage is available in FOXNews.com's North Korea Center.

Communist officials have made the lifting of U.S. financial restrictions its main condition for abandoning its nuclear weapons program. The North agreed to end a 13-month boycott of the six-nation nuclear talks because the U.S. promised to discuss the issue.

"North Korea has not sincerely responded" to pleas for implementing a September 2005 agreement where the country pledged to abandon its nuclear program for aid and security guarantees, the Japanese envoy said.

"China is making efforts through repeated separate discussions with the United States and North Korea, but at this moment, there is absolutely no landing point in sight," he said.

Earlier Thursday, the chief U.S. negotiator urged the North not to let the financial issue derail the negotiations.

U.S. Assistant Secretary of State Christopher Hill said North Korea's Oct. 9 nuclear test demonstrated the danger its arms program poses.

"I'd rather not obscure that urgent problem by talking about finances," he said before the day's meetings.

American and North Korean experts discussed the financial restrictions for two days this week in Beijing in separate talks, but made no breakthroughs. They may meet again next month in New York.

Meanwhile, South Korean officials said they hoped to resuscitate their stalled dialogue with the North over reconciliation.

Renewed North-South talks, said Unification Minister Lee Jae-joung, would "have a good effect on resolving the North Korean nuclear issue."

Ri Chun Bok, vice chairman of the North's National Reconciliation Council, told the Yonhap news agency that talks could resume if the South reverses its decision to halt humanitarian aid to Pyongyang.

The two Koreas are still technically at war since the 1950-53 Korean War ended in a truce, not a peace treaty.

The North says it needs nuclear weapons because of Washington's "hostile" policy toward Pyongyang's Communist regime, citing the United States' financial sanctions, criticism of North Korea's human rights record, and joint military exercises with South Korea.

North Korea will not consider U.S. offers of a written security guarantee and economic aid as "real proof of the U.S. withdrawing its hostile policy," Japan-based Chosun Sinbo, a pro-North Korean newspaper, reported Thursday, citing diplomatic sources at the negotiations. Instead, the North said the financial restrictions must be lifted to prove the U.S. has changed its stance.

A South Korean official confirmed Thursday that negotiators had not even begun to talk about the North's nuclear program because of the impasse over the U.S. financial restrictions.

The U.S. has outlined a series of steps its willing to take, the official said, but Pyongyang has not responded yet. He spoke on condition of anonymity due to the sensitivity of the ongoing talks.

The North has indicated it is only prepared to discuss a freeze on nuclear arms production, the official said, not the destruction of weapons it has already built.

The talks — consisting of China, Japan, Russia, the U.S. and the two Koreas — are scheduled to continue until at least Friday.

Meanwhile, a South Korean lawmaker said Thursday there were signs North Korea could conduct a second nuclear test.

Rep. Chung Hyung-keun of the main opposition Grand National Party, a former intelligence official, said North Korea dug two tunnels in a mountain in the country's northeast and used one of them for its earlier nuclear test.

"There has been brisk activity since this month" at the other tunnel, he said.

Complete coverage is available in FOXNews.com's North Korea Center.