SEOUL -- South and North Korea agreed Sunday to resume high-level dialogue, shaking off a conflict of sentiment over a deadly naval clash in June and territorial disputes.

The talks will be held in Seoul for three days from August 12, according to a joint statement issued at the end of three-day negotiations at the North's Mount Kumgang resort.

South Korean chief negotiator Rhee Bong-jo said the minister-level talks would help jumpstart inter-Korean reconciliation events, which were suspended last year.

"I am very glad to see our working contact bear good fruits far beyond earlier expectations," he said.

The Stalinist North also gave an unexpected gift to South Korea by agreeing to participate in this year's Asian games, which start in the southern city of Busan on September 29.

"It is a very meaningful agreement for the North to send its athletes to the Busan Asiad," said Rhee.

The agenda at next week's talks will cover further reunions of families parted by the separation of the Koreas, cross-border transport links, and economic cooperation.

The statement did not mention the June 29 skirmish between South and North Korean navies in the yellow sea but the North expressed regret and promised to prevent such incidents, Rhee said.

On Saturday South Korea lodged a protest with North Korea over the incident which claimed the lives of four South Korean soldiers.

Some 30 North Koreans were also presumed dead or wounded.

The battle pushed inter-Korean ties to their lowest level since the two rivals produced a historic declaration to move toward peace and reconciliation at a leaders' summit in June 2000.

The Stalinist North pulled out of inter-Korean talks in November 2001 over a security alert caused by the September 11 attacks on the United States and President George W. Bush's hardline stance toward Pyongyang.

But Pyongyang surprised the world last month with its unexpected offer to resume the talks.

Rhee admitted the June clash had hampered negotiations but noted it would be fully discussed at a military generals meeting on Tuesday between North Korea and the U.S.-led UN Command (UNC) at the border truce village of Panmunjom.

The North last week called for the military meeting to determine who should be blamed for the clash. The UNC, formed during the 1950-53 Korean war, has accepted the North's offer.

At next week's talks, the two Koreas will discuss the opening of stalled economic and military talks, and the construction of an industrial base in the North Korean city of Kaesong, the statement said.

The talks will also discuss steps to support an inter-Korean soccer match on September 8 in Seoul and joint celebrations by civic groups in seoul to mark Korea's liberation from Japanese colonial rule on August 15, 1945, it said.

The statement reflects efforts by the economically-crippled North to forge links with the outside world and secure aid from South Korea.

At an Asia-Pacific Security Forum in Brunei last week North Korean Foreign Minister Paek Nam-sun staged meetings with a host of foreign ministers headed by U.S. Secretary of State Colin Powell.

Territorial issues have remained a stumbling block to rapprochement, as the North demands the scrapping of the Northern Limit Line (NLL), a maritime frontier unrecognized by the North.

The North has blamed the NLL as the main source of conflict. On Saturday, the North's ***Rodong*** newspaper warned North Korean troops would make "retaliatory punishment without warning" if south Korea and its U.S. ally continue "ignoring our legitimate self-defensive measures and insisting on the NLL.