The United States and China on Tuesday called on the UN Security Council to sanction North Korean diplomats and "illicit" cash transfers to step up pressure on Pyongyang's nuclear program.
But the isolated North heightened tensions, threatening to scrap an armistice that halted the 1950-53 Korean War and warning of "strong" counter-measures against what it called US hostility.
US ambassador Susan Rice circulated the text of a sanctions resolution to the other 14 members of the Security Council and diplomats said a vote could be held on Thursday.
"For the first time ever, this resolution targets the illicit activities of North Korean diplomatic personnel, North Korean banking relationships, illicit transfers of bulk cash and new travel restrictions," Rice said after the closed meeting.
Since North Korea's nuclear tests in 2006 and 2009, the UN Security Council has already built up one of its toughest sanctions regimes ever imposed.
The resolution adds three new individuals and two firms to the nine people and 17 companies and state agencies subject to a UN travel ban and asset freeze, according to a UN diplomat with knowledge of the text.
It also makes it compulsory for states to stop financial transactions linked to North Korea's nuclear and ballistic missile program and weapons exports.
This will include "bulk cash transfers" which the United States suspects are being increasingly used as the North finds contacts with the outside world cut off.
"They literally move money in suitcases full of cash," said the UN diplomat.
The resolution orders states to keep a special watch on North Korean diplomats.
"We know there have been diplomats out there cooking up deals, moving funds around and engaging in activities they shouldn't," said the diplomat.
The resolution makes searches of suspect ships compulsory and orders UN members to refuse access to planes suspected of carrying banned material to or from North Korea.
The Security Council would put new technology items on the banned trading list, in a bid to halt the North's uranium enrichment program, which is named for the first time in a resolution.
The proposed measures would "take the UN sanctions imposed on North Korea to the next level, breaking new ground and imposing significant new legal obligations," Rice told reporters after the closed council meeting.
Rice and Chinese ambassador Li Baodong have been negotiating the measures since the North staged its third nuclear test on February 12.
Diplomats said there had been "tough talks" between the two.
Li told reporters there had been "some different views" on how to respond but added that China supports Security Council action.
Beijing opposes North Korea's nuclear test and the international community has "got to bring an end to that program. That's why we need a strong signal," Li said.
"We think that action should be proportionate, should be balanced and focus on bringing down the tension and focusing on the diplomatic track," Li added.
The proposed resolution vows "further significant measures" if a new nuclear test or rocket launch is staged.
But ahead of the meeting North Korea threatened to scrap the historic armistice that has helped keep the peace on the Korean peninsula for the past six decades.
The North's military said in a statement that it would cut off a military hotline in the truce village of Panmunjom, which straddles the heavily fortified border with South Korea.
It also threatened "strong" additional countermeasures in response to what it called US hostility.
The armistice will be "completely" nullified from March 11, when military exercises by South Korean and US forces get into full swing, said the statement.
The annual Foal Eagle exercise began on March 1 and will run until April 30, involving more than 10,000 US troops and a far greater number of South Korean military.
Pyongyang habitually denounces such drills as a provocative rehearsal for invasion. The North has threatened in the past to scrap the armistice at times of high tension.
Pyongyang's February 12 nuclear test was the most powerful it has conducted yet. Diplomats and experts have said it is possible a new test could be staged.
Rice said "the more provocations that occur, the more isolated and impoverished, sadly, North Korea will become."
In 2006, the UN Security Council ordered an embargo on arms and material for ballistic missiles. It also banned exports of luxury goods. The new resolution names jewelry, luxury and racing cars and yachts that must be banned.
In 2009, the council banned North Korea's weapons exports and ordered all countries to search suspect shipments.