North Korea threw next month's unprecedented summit between Kim Jong Un and U.S. President Donald Trump into doubt on Wednesday, threatening weeks of diplomatic progress by saying it may reconsider if Washington insists on unilateral denuclearisation. The North's official KCNA news agency said earlier on Wednesday Pyongyang had called off high-level talks with Seoul in the first sign of trouble in what had been warming ties. Citing first vice minister of foreign affairs Kim Kye Gwan, KCNA later said the fate of the U.S.-North Korea summit, as well as bilateral relations, "would be clear" if Washington spoke of a "Libya-style" denuclearisation for the North. "If the U.S. is trying to drive us into a corner to force our unilateral nuclear abandonment, we will no longer be interested in such dialogue and cannot but reconsider our proceeding to the DPRK-U.S. summit," Kim Kye Gwan said, referring to the North's official name, the Democratic People's Republic of Korea. "We have already stated our intention for denuclearisation of the Korean peninsula and made clear on several occasions that precondition for denuclearisation is to put an end to anti-DPRK hostile policy and nuclear threats and blackmail of the United States," he said. The statements, combined with joint military drills by South Korean and U.S. warplanes, mark a dramatic reversal in tone from recent months when both sides embraced efforts to negotiate. North Korea had announced it would publicly shut its nuclear test site next week. Trump and Kim are scheduled to meet in Singapore on June 12. ECONOMIC INCENTIVES U.S. Secretary of State Mike Pompeo said on Sunday the United States would agree to lift sanctions on North Korea if it agreed to completely dismantle its nuclear weapons programme. However, Kim Kye Gwan's statement appeared to reject such an arrangement, saying North Korea would never give up its nuclear programme in exchange for economic trade with the United States. Asian stock markets dipped on Wednesday after Pyongyang called off the talks with the South that were set for Wednesday. A cancellation of the June 12 summit in Singapore could see tensions on the Korean peninsula flare again even as investors worry about China-U.S. trade friction. "This will weigh on the Korean reconstruction beneficiaries that have had a strong run on peace and even reunification hopes recently," JPMorgan analysts wrote in a note. South Korea's foreign minister Kang Kyung-hwa spoke to Pompeo by telephone earlier on Wednesday and discussed North Korea's postponement of the talks with the South, the foreign ministry said in a statement. Pompeo told Kang that Washington would continue to make preparations for the U.S-North Korea summit, bearing in mind the recent action by North Korea, it said. Kim Kye Gwan's statement came only hours after North Korea denounced the U.S.-South Korean military exercises as a provocation and pulled out of the talks with the South scheduled for Wednesday. An earlier KCNA report angrily attacked the "Max Thunder" air combat drills, which it said involved U.S. stealth fighters and B-52 bombers. MAJOR BLOW Any cancellation of the June 12 summit in Singapore, the first meeting between a serving U.S. president and a North Korean leader, would deal a major blow to what would be the biggest diplomatic achievement of Trump's presidency. Trump has raised expectations for a successful meeting even as many analysts have been sceptical about the chances of bridging the gap due to questions about North Korea's willingness to give up a nuclear arsenal that it says can hit the United States. Kim Kye Gwan singled out comments by Trump's national security adviser John Bolton, who has suggested a so-called Libya model under which North Korea would quickly hand over its nuclear arsenal to the United States or other countries. "(The) World knows too well that our country is neither Libya nor Iraq which have met miserable fate," Kim Kye Gwan said. "It is absolutely absurd to dare compare the DPRK, a nuclear weapon state, to Libya which had been at the initial stage of nuclear development." Kim Jong Un's latest move could be aimed at testing Trump's willingness to make concessions ahead of the summit, which is to be preceded by a visit to Washington next week by South Korean President Moon Jae-in. A U.S. government expert on North Korea said Kim may also be trying to gauge whether Trump is willing to walk away from the meeting. Joshua Pollack, of the Middlebury Institute of International Studies in California, said Pyongyang appeared irritated by the U.S. administration's vow to maintain sanctions in spite of North Korean concessions. "The North Koreans want a change in tone from the U.S., and at least so far, they're not hearing one," he said. The doubt thrown over the Kim-Trump summit comes a week after Trump abandoned the 2015 nuclear deal between Iran and six world powers, under which Tehran curbed its nuclear programme in exchange for the lifting of most international sanctions. The "Max Thunder" drills would go on as planned and were not aimed at attacking a third party, the South's defence ministry said. KCNA called the air drills a "provocation" that went against the trend of warming ties. "Kim Jong Un had said previously that he understands the need and the utility of the United States and the Republic of Korea continuing in its joint exercises," U.S. State Department spokeswoman Heather Nauert told a briefing. KCNA said North Korea was suspending Wednesday's ministerial-level meeting, which was to focus on plans to implement the inter-Korea summit declaration, including promises to formally end the 1950-53 Korean War and pursue "complete denuclearisation". South Korea described the North's decision as "regrettable".