North Korea demanded the lifting of sanctions, imposed by South Korea after a 2010 attack on one of its naval vessels, as a condition for resuming dialogue.
It was the first official response to the South's offer to talk, including discussions on resuming reunions of families separated during the 1950-53 civil war.
After a delegation of high-level North Korean officials made a surprise visit in October last year to the closing ceremony of the Asian Games, South Korea said it was willing to discuss the sanctions as a way to move forward.
The measures, imposed in May 2010 after a torpedo attack against a South Korean navy ship that killed 46 sailors, cut off most political and commercial exchanges with the North. The North denies it was responsible.
"If the South Korean government is sincerely interested in humanitarian issues, it should first remove the ban that was imposed for the purpose of confrontation," the North's KCNA news agency quoted a spokesman for the Committee for the Peaceful Reunification of Korea as saying.
The South's Unification Ministry, which handles inter-Korean affairs, said that lifting sanctions would first require "responsible action" from the North.
"It is regrettable that North Korea has linked the purely humanitarian issue of separated families to the May 24 measure, which is completely irrelevant," the ministry said in the emailed statement, referring to the South's sanctions.
North Korea, already heavily sanctioned by the United Nations for its missile and nuclear tests, is technically still at war with the South after the Korean War ended in a truce, not a peace treaty.
North Korea said this month it would suspend nuclear tests if the United States cancelled its annual joint military drills with South Korea, which Pyongyang routinely describes as preparations for invasion.
The United States and South Korea rejected the call, saying the drills were defensive and have been conducted for decades without major incident.
The reunions, highly choreographed and emotional affairs between family members, most now in old age, had until last February not taken place since 2010.