South Korea on Thursday began removing its citizens from a jointly run industrial park on the border with North Korea, a news report said.
The move was in response to Pyongyang's recent nuclear test and rocket launch, which have further strained tensions on the Korean peninsula, Yonhap News Agency reported.
"The government is seeking to withdraw South Koreans from there as soon as possible," a Unification Ministry official said, according to Yonhap.
North Korea responded by announcing later Thursday that it was closing the complex, and would expel all South Koreans from it, Yonhap reported.
The Kaesong Industrial Complex, established in 2004, contains 120 South Korean companies which employ around 54,000 North Koreans.
A considerable number of the North Koreans did not show up for work on Thursday, Yonhap said.
Seoul announced Wednesday it was suspending participation in the complex, cutting off the supply of hard currency that flows from it to the North's regime.
On January 6, North Korea carried out its fourth nuclear test since 2006. It launched a long-range ballistic missile and sent a satellite into orbit on Sunday.
Western countries and the UN Security Council condemned the launch as a test of nuclear-capable technology and a violation of previous agreements, and threatened tighter sanctions against the regime.
The United States Senate late Wednesday passed a bill approving stricter measures by US authorities against efforts to help North Korea's nuclear programme or other violations of the sanctions.