In a bellicose statement, North Korea said South Korea's actions had brought the peninsula to brink of war, and compared Seoul's moves in shuttering the complex to "dropping an ax on one's own foot."
Pyongyang said it would expel all South Koreans working at the Kaesong industrial complex Thursday, freeze all the assets of South Korean companies operating there, and place the zone under military control. It was also cutting off a military hotline with the South, according to the statement by North Korea's Committee for the Peaceful Reunification of Korea, carried in North Korean state media.
The complex, situated in North Korea just a few kilometers north of the border, was opened in 2004 as part of reconciliation efforts between the two Koreas.
More than 120 South Korean companies have a presence there, employing tens of thousands of North Koreans and providing an important stream of hard currency to Pyongyang.
North Korea has received roughly 616 billion won ($515 million) from the complex since it opened, according to a South Korean government statement.
South Korean Unification Minister Hong Yong-pyo told CNN that the action was being taken "to stop funds from the complex to be used by North Korea for developing nuclear (weapons) and missiles, and prevent our firms from being sacrificed."
Seoul: Kaesong funds used for nuclear weapons
The move prompted an angry response Thursday from North Korea.
"This provocative measure cuts off the last existing lifeline between North and South Korean relations ... and is a very dangerous declaration that drives the situation on the Korean peninsula to the furthest extreme of confrontation and war," North Korean state media reported, quoting a government committee.
The statement said it was "unpardonable" of Seoul to find fault with Pyongyang's recent rocket launch and nuclear test, actions it said were "a just measure for self defense and an exercise of its legitimate right."
The statement came the same day as a South Korean official confirmed to CNN that Pyongyang had executed a senior North Korean military leader
Wednesday, Seoul announced it was suspending operations at Kaesong, saying Pyongyang's recent actions demonstrated it had "not even ... the slightest intent to forgo the development of its nuclear and missile capabilities."
South Korea had been involved in the joint project at Kaesong "with a view to assisting the lives of the North Korean people, providing impetus to lifting up the North Korean economy, and achieving shared progress for both South and North Korea," the statement said.
But rather than helping to "pave the way to peace," it appeared funds earned by Pyongyang through the site had been used "to upgrade its nuclear weapons and long-range missiles," the statement said.
An estimated 132 billion won ($110 million) had flowed into North Korea through the complex in 2015 alone, it said.
Japan reveals proposed sanctions
Japan also announced plans to hit North Korea with new sanctions over its rocket launch and nuclear test, following a meeting of its National Security Council on Wednesday.
A list of proposed sanctions released by Prime Minister Shinzo Abe's office outlined plans to beef up North Korea-related travel bans, tighten restrictions on money remittances, ban North Korean ships from Japan's ports and expand a freeze on Pyongyang's assets.
The new measures would impose bans on entering Japan for North Korean nationals and officials, foreign residents with links to nuclear technology or missile engineering who had visited North Korea, and crew members of North Korean ships.
It would also impose a ban on remittances to North Korea of more than 100,000 yen ($871), with sums smaller than that permitted only for humanitarian purposes. People traveling to North Korea would have to report to the government sums carried of more than 100,000 yen -- the previous threshold for reporting was 10 times that.
The proposed sanctions still require Cabinet and Parliament approval.
Nuclear enrichment facility 'reactivated': Intelligence chief
The announcements followed news that North Korea has reactivated its Yongbyon enrichment facility and could begin to recover plutonium from the reactor's spent fuel in a "matter of weeks or months," according to James Clapper, the director of national intelligence for the United States.
According to multiple experts, North Korea has at least a dozen and perhaps as many as 100 nuclear weapons, though at present it lacks sophisticated delivery mechanisms.
At the same hearing, Sen. Jack Reed said that North Korea presented "an immediate and present danger to global security," and blamed Pyongyang's largest benefactor and trading partner, China, for failing to bring the regime into line.
"While China could exert pressure on North Korea through economic sanctions to encourage the regime to desist, the Xi administration prefers to remain on good terms with North Korean regime, putting the entire region at risk," he said.
Bomb test, rocket launch
In January, Pyongyang claimed to have successfully tested a hydrogen bomb in its fourth nuclear test.
U.S. officials were initially skeptical of the claim, but later assessed that there may have been a partial, failed test
of some type of components associated with a hydrogen bomb.
Then on February 7, Pyongyang said it had successfully launched an Earth satellite into orbit via the long-range Kwangmyongsong carrier rocket. Both the test and the launch were carried out in defiance of international sanctions.
Two days later, South Korea released the first images of debris retrieved from the sea southwest of Jeju Island shortly after the rocket launch.
An official with South Korea's Defense Ministry said that the booster "separated from (the rocket's) main body and exploded into about 270 pieces."
Officials said that, unlike in previous launches, the rocket booster appeared to have been fitted with a self-destruct device to prevent other parties from studying its capabilities.
A senior U.S. defense official later told CNN that the satellite was "tumbling in orbit"
and incapable of functioning in any useful way.
It stabilized briefly over the weekend, only to resume tumbling in the last day or so, a U.S. defense official told CNN on Wednesday.
Peaceful or military applications?
The technology involved in the launch was "dual-use" and could be used to launch a satellite or deliver a warhead.
Many countries believed the launch was a front for a long-range missile test, while North Korea maintains the launch was for scientific and "peaceful purposes."
An emergency meeting of the United Nations Security Council on Sunday agreed on the need for new sanctions against Pyongyang.