In a statement Sunday, South Korea's Unification ministry said North Korea was spending 70% of wages destined for workers at Kaesong Industrial Complex .
"North Korea's party, government and military is earning foreign currency [cash, USD] ... [it is] being spent for nuclear and missile development, idolization and luxury goods," the statement said.
The Kaesong complex lies north of the Demilitarized Zone, which divides the two Koreas.
Around 125 South Korean businesses employing some 52,000 North Korean workers have operated there in a rare example of cooperation between the two neighbors.
The workers' wages -- said to total around $90 million a year
-- have been paid directly to Pyongyang.
'Extremely provocative act'
Seoul announced this month
it was closing the complex following North Korea's "extremely provocative act" of launching a long-range missile
after a nuclear test
Pyongyang responded by saying it would expel all South Koreans from Kaesong and freeze assets there.
A government committee said Seoul's "dangerous declaration" drove the situation on the Korean peninsula "to the furthest extreme of confrontation and war," according to North Korean state media.
South Korea subsequently accused the North
of giving South Koreans a "very short deadline to leave." It also said the North is illegally freezing South Korean companies' assets.
Neighbors at war
Last week, the director of the Korean Studies Institute at the University of Southern California said money from the complex could have been used by North Korea for its nuclear program.
David Kang said North Korea's nuclear program could be funded indirectly by Kaesong.
"I think the larger point is that North Korea has not responded to any sanctions," he said. " The one jewel that nobody has really wanted to touch is this joint economic zone."
Seoul's decision to shut the Koreas "biggest symbol of engagement" showed how fed up the country was with its northern neighbor, he said.
The two Koreas have technically been at war since hostilities began in 1950. An armistice was signed three years later.
But in 2013, the North declared the ceasefire agreement invalid.