The talks come as the U.S. Navy tracks a North Korean ship under new U.N. sanctions that bar Pyongyang from trading in weapons, including missile parts and nuclear material.
North Korea may be looking to launch a long-range missile toward Hawaii in the coming weeks, news reports said.
That would be in defiance of U.N. resolutions but could be part of an attempt to consolidate leader Kim Jong-il's power in preparation for succession in Asia's only communist dynasty, South Korean officials say.
Previous rounds of talks between North and South Korean officials over the Kaesong Industrial Complex have hit snags over the money and Pyongyang's refusal to meet Seoul's demands to release a South Korean worker held at the park for supposedly insulting the North's communist system.
"We will be demanding the speedy release of our worker who has been held for more than 80 days," the South's chief delegate Kim Young-tak said before he crossed the heavily armed border into the North for the Kaesong talks.
North Korea has demanded wages of $300 a month per person for the about 40,000 North Koreans employed in Kaesong, up from around $70 now. The North also wants lease payments of $500 million over 50 years, an increase of more than 30 fold from the current deal.
A South Korean fur coat maker pulled out of the Kaesong complex this month, the first to do so, citing declining orders from wary buyers and concerns about its workers' safety.
North Korea in May said it was cancelling all wage, rent and tax agreements at Kaesong in what analysts said was likely a bid to squeeze more money out of the more than 100 South Korean firms that use the cheap labor and land there.
Missiles and Ships
The U.S. monitoring of the North's ship, which left port on Wednesday, is the first under the U.N. sanctions adopted last week after Pyongyang conducted a nuclear test and warned of firing an intercontinental ballistic missile.
U.S. officials declined to say what the ship, called the Kang Nam, might be carrying but said it had become "a subject of interest".
"North Korea will endlessly try to export arms. They are unable to shake this thought off their minds because exporting arms is a very profitable business compared to other goods," said Cho Myung-chul, an expert on the North's economy at the South's Korea Institute for International Economic Policy.
The U.S. Treasury Department warned banks on Thursday that North Korea may increasingly try to use cash transactions to evade U.N. sanctions aimed at cutting off financing to its nuclear program.
U.S. Defense Secretary Robert Gates said Washington was concerned about the possibility of North Korea firing off more missiles, possibly toward Hawaii.
"We're obviously watching the situation in the North with respect to missile launches very closely, and we do have some concerns if they were to launch a missile ... in the direction of Hawaii," he said.
"Without telegraphing what we will do, I would just say we are in a good position—should it become necessary—to protect American territory."
Gates said that as a precaution he had directed the redeployment of anti-missile assets in the Pacific region, including advanced radar and other defensive systems capable of bringing down medium-range ballistic missiles.
North Korea in April fired what is said was a rocket to put a satellite in orbit, but regional powers said the launch was actually a disguised test of the long-range Taepodong-2 missile, designed to fly as far as U.S. territory.
The rocket flew about 3,000 km (1,860 miles), well short of the 7,000 km needed to take it to Hawaii.