SEOUL North and South Korea have failed to reach agreement in talks about upgrading their joint industrial estate, amid military tensions sparked by the communist state's artillery barrage last week.

But the two sides agreed during future military talks to discuss border restrictions which impede business at the Kaesong estate just north of the border, Seoul's Unification Ministry said late Monday.

At Monday's talks in Kaesong the South's delegation protested at the shelling, ministry spokesman Chun Hae-Sung told Yonhap news agency.

The North's side described the firing as "a due military drill," he said.

Last week the communist state banned shipping for two months from two zones along its disputed west coast sea border with South Korea.

The following day it started a three-day artillery exercise in which 370 shells landed near the borderline, raising tensions on the peninsula.

Yonhap, quoting military sources, said the North has declared five extra "no sail" zones lasting until late Tuesday off its east and west coasts -- raising concerns about possible short-range missile tests.

Monday's talks were the second this year about ways to develop Kaesong, where 42,000 North Koreans work at 110 South Korea-funded plants.

The sanctions-hit North demanded negotiations on pay rises, while the South said talks should first focus on easier cross-border access to Kaesong and on housing for Northern workers there.

"Pay is directly related to productivity, which can be improved only if infrastructure and facilities are improved," Seoul's chief delegate Kim Young-Tak told reporters late Monday.

Kim said border restrictions would be discussed at military talks which the North has proposed. South Korea has yet to agree a date for that meeting.