North Korea nuclear test 'possible' in new year

North Korea could carry out a third nuclear test next year to strengthen the credentials of its young leader-in-waiting, Kim Jong-un, a research report from a South Korean Foreign Ministry institute said on Friday.

The report came a day after Pyongyang vowed a nuclear "sacred war," using its nuclear deterrent, after the South vowed to be "merciless" if attacked again and held a major military drill near the border.

The North, which carried out nuclear tests in 2006 and 2009, has yet to show it has a deliverable weapon as part of its plutonium arms program, but a third test would raise tensions further on the divided peninsula and rattle global markets.

South Korean media reported earlier this month that the North was digging a tunnel in preparation for a nuclear test.

"There is a possibility of North Korea carrying out its third nuclear test to seek improvement in its nuclear weapons production capability, keep the military tension high and promote Kim Jong-un's status as the next leader," the report said, referring to ailing Kim Jong-il's youngest son.

"Tension between the two Koreas will remain high with chances of additional North Korean attacks on the South staying high," the Foreign Ministry-run Institute of Foreign Affairs and National Security said.

"U.S. ENTIRELY TO BLAME"

Tension on the peninsula is at its highest since the 1950-53 Korean War, after a deadly naval clash in March and the North's artillery attack on a South Korean island last month which killed four people. The two Koreas are technically still at war as their civil conflict ended in a truce, not a treaty.

The North's KCNA news agency, which regularly threatens total destruction of the rich capitalist South, on Friday lay the blame on Washington and called South Korea one of its "shock brigades."

"The U.S. is entirely to blame for the alarming developments on the peninsula this year as it used the peninsula for realizing its strategy to dominate East Asia," KCNA said in a commentary.

Analysts said recent tensions have managed to turn back the clock on ties between the rivals by more than a decade.

"In the South, impatience with Pyongyang is growing, and there are demands from the right in Seoul for more robust terms of military engagement in the event of future clashes," said Daniel Pinkston of the International Crisis Group.

Still, the risk of all-out war is low, and the North's threats of destruction are seen as largely rhetorical.