South Korea's Unification Ministry announced Pyongyang's decision on Friday, citing "instructions from the superior authority" in the North, The Associated Press (AP) reported .
The two countries set up the joint office in Kaesong, near the demilitarized zone (DMZ), after North Korean leader Kim Jong Un and South Korean President Moon Jae-in met for the first time last April.
International sanctions have proven to be a sore point for North Korea.
Talks between Kim and President Donald Trump in Hanoi, Vietnam, abruptly broke down in February over disagreements over sanctions.
But North Korea's foreign minister, Ri Yong Ho, said Pyongyang had only asked for a partial not full lifting of sanctions . Ri added that North Korea offered to dismantle its primary nuclear facility and to permanently halt the testing of nuclear weapons and long-range missiles, but the US asked for more.
The North blames the South for strained relations with Trump
The site of the liaison office had been a symbol of the improving collaboration between the two Koreas, which technically remain at war .
North Korean media have been criticizing South Korea's limited influence in improving US-North Korea relations since the failed Hanoi summit, NK News reported .
The state-run Meari news outlet said on Friday, according to NK News: "How can the South Korean authorities, which cannot do anything without the US's approval and instruction, play the role of mediator and facilitator?"
Meari added that the Moon administration had not taken any "practical measures to fundamentally improve inter-Korean relations," and is "walking on eggshells around its master, the US."
Chad O'Carroll, the founder of NK News and chief executive of the Korea Risk Group, said that North Korea's withdrawal also sent the message: "What's the point of [inter-Korean] talks when sanctions prevent practical cooperation?"
'Sad and unfortunate'
South Korea's vice minister of unification, Chun Hae-sung, told reporters that the withdrawal was "sad and unfortunate," and that Seoul will need time to figure out next steps, according to CNN .
"We regard such a withdrawal as very sad and unfortunate [and] we hope that the North will return shortly and hope that the liaison contact office will operate normally as soon as possible," Chun said.
A statement by Seoul's Unification Ministry also called the decision "regrettable," but ensured that South Korea would continue staffing the office, the AP reported.
Reuters/Athit Perawongmetha
The two Koreas had been hoping to revive a joint industrial complex in Kaesong that combined the South's capital and technical knowledge with the North's cheap labor, the AP reported.
But a reopening would require the US to make exceptions on its stiff sanctions on Pyongyang because the factory is near the Korean DMZ.
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