North Korea said Friday it would encourage international investment in a mountain resort, weeks after threatening to scrap its exclusive deal with the South Korean firm that helped fund the project.

The special zone for international tours will be set up around Mount Kumgang under a decree issued by parliament Friday, the North's official news agency said.

The resort on the east coast was largely developed by the South's Hyundai Asan and was the two countries' first joint project, designed to foster reconciliation.

Tours by South Koreans, once a significant source of hard currency for the impoverished North, began in 1998.

But they ground to a halt in 2008 after a North Korean soldier shot dead a Seoul housewife who had strayed into a restricted military zone.

The South says it will not restart them until the North allows an on-site investigation into the shooting and gives firm safety guarantees - a demand Pyongyang refuses to accept.

Three weeks ago the North threatened to deprive Hyundai Asan of its monopoly over the tours to the resort in which the South Korean firm has invested millions of dollars.

The North has warned it may reach a deal with an unspecified "overseas businessman" to replace Hyundai Asan.

Overall cross-border relations have been icy since the South accused the North of torpedoing a warship in March 2010 with the loss of 46 lives.

Pyongyang denies the charge but went on to shell a South Korean island last November, killing four people.

The North, in its decree Friday, said it would encourage free investment in the new zone by "corporate bodies, individuals and other economic bodies".

Measures will be taken to increase new tourist attractions depending on progress made in developing the zone, it said.