The US decision came at a weekend meeting between the chief nuclear negotiators of the two countries in Geneva, a foreign ministry spokesman told the official Korean Central News Agency.

"Both sides discussed the issue of taking practical measures to neutralise the existing nuclear facilities in the DPRK (North Korea) within this year and agreed on them," the spokesman said.

"In return for this the US decided to take such political and economic measures for compensation as delisting the DPRK as a terrorism sponsor and lifting all sanctions that have been applied according to the Trading with the Enemy Act," he said.

There was no immediate confirmation from the United States.

Apart from mandating US sanctions, inclusion on the US terror sponsor list also means the impoverished state is blocked from receiving loans from multilateral bodies like the World Bank and the Asian Development Bank.

The North's spokesman said the Geneva talks had "laid the groundwork for making progress at the plenary session of the six-party talks" aimed at ending the communist state's nuclear ambitions.

North Korea has already shut down its nuclear reactor at Yongbyon under a six-nation agreement reached on February 13. The deal also involves the United States, China, South Korea, Japan and Russia.

Under the deal, North Korea agreed to make a full declaration of all its nuclear programmes and to disable them in return for aid and security and diplomatic guarantees, notably a normalisation of ties with Washington.

The six-party talks are expected to resume in Beijing later this month.

Chief US nuclear envoy Christopher Hill said Sunday after the Geneva talks that the communist state had agreed to fully declare and disable its facilities by the end of 2007.

The US envoy also said the two sides had held "good discussions" on removing the North from the terror sponsor list but gave no details. The issue is part of the February 13 pact.

The North has been on the US list since one of its agents blew up a South Korean passenger jet in 1987, apparently in an attempt to disrupt preparations for the Seoul Olympics the following year.

The North, which used the Yongbyon reactor to produce the raw material for bomb-making plutonium, conducted its first atomic weapons test in October. The reactor's closure prevents any more plutonium being produced.

But the United States has also said it suspects the North is running a highly enriched uranium programme, a claim denied by Pyongyang.

Washington and Pyongyang have had largely hostile relations since they fought the 1950-1953 Korean War. The six-nation pact, if fully implemented, foreshadows a peace treaty formally ending that war as well as normalised ties with the US and Japan.

Japan and North Korea will meet in the Mongolian capital Ulan Bator this week in a bid to ease the strained ties over Pyongyang's kidnapping of Japanese citizens in the 1970s and 1980s.

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Japan puts brave face on US-NKorea talks
Tokyo (AFP) Sept 3 - Japan's foreign minister said Monday that the United States was keeping its close ally's interests in mind as it reconciles with North Korea, Tokyo's arch-enemy.

"We were told by the United States that they will not improve ties between the United States and North Korea by sacrificing the Japan-US relationship," Foreign Minister Nobutaka Machimura told reporters.

He spoke just before North Korea said the United States had decided to remove the communist state from its list of states sponsoring terrorism.

Japan had called on the United States to keep Pyongyang on the list until a row is resolved over North Korea's past kidnappings of Japanese civilians to train its spies.

Politically embattled Prime Minister Shinzo Abe has campaigned on the abduction row throughout his career and cited the dispute when he refused to fund a US-backed six-nation deal on ending the North's nuclear drive.

US chief negotiator Christopher Hill held two days of talks with his North Korean counterpart in Geneva this weekend and told reporters that the abduction issue was also important to the United States.

"The fact that the talks were forward-looking will contribute to progress in the six-party talks as a whole," Machimura said. "I expect the Japan-North Korea talks in Mongolia will make similar progress."

North Korea and Japan will meet in Mongolia starting Wednesday in their first bilateral talks in six months. Abe has vowed to use the meeting to press Pyongyang on the kidnappings.

North Korea has acknowledged snatching 13 Japanese in the 1970s and 1980s. It returned five victims and their families and says, to Japan's scepticism, that the rest are dead.