Photo: Xinhua

South Korea's President Moon Jae-in said Seoul would increase military spending and urged the North to return to dialogue in a budget speech on Tuesday that could infuriate Pyongyang with nuclear talks gridlocked.

Contact between North and South Korea stalled after the collapse of a February summit between North Korean leader Kim Jong-un and US President Donald Trump in Hanoi, Vietnam.

Since then Pyongyang has excoriated its neighbor over joint military drills with the US, and the acquisition of US fighter jets.

It is a far cry from the cross-border warmth of last year, when Moon seized on the Pyeongchang Winter Olympics to broker the North-South discussion process and held three summits himself with Kim.

South Korea will increase defense spending by seven percent to more than 50 trillion won ($42 billion) next year, Moon told parliament, emphasizing that "strong defense" was crucial for "self-determination."

"We will strengthen the core defense system by boosting assets such as next-generation submarines and surveillance satellites," he said.

The announcement came after North Korea this month tested what it said was a submarine-launched ballistic missile that marked a "new phase" in its capabilities - the most provocative in a series of weapons tests it resumed after an 18-month hiatus.

Pyongyang and Washington restarted working-level talks in Sweden this month only for them to quickly break down, with the North blaming the US for not giving up its "old attitude" and setting the end of this year as deadline for Washington to change its stance.

It has also said it has nothing more to talk about with Seoul, and condemned joint South Korea-US drills and the deployment of F-35A fighter jets in the South as rehearsals for invasion and ­violations of Seoul-Pyongyang agreements.

But Moon - who has long championed engagement with Pyongyang - held out hope for a breakthrough despite the setbacks, claiming that the deadlocked talks were the "last hurdle" before denuclearization.