North Korea is blocking the entry of South Korean workers into a joint industrial zone, in a move seen as further escalating tensions.
Workers were being allowed to leave the Kaesong complex but not cross into it from the South, Seoul's Unification Ministry confirmed.
The Kaesong zone, which is a money-maker for the North, is seen as a key barometer of inter-Korean relations.
The move came as the US called North Korea's recent rhetoric unacceptable.
The joint industrial park is home to more than 100 factories. More than 50,000 North Koreans work there, as well as several hundred South Korean managers.
Permission is granted on a daily basis for workers to cross into the complex, where they can stay overnight. More than 850 South Koreans were at Kaesong when the ban was announced.
"South Korea's government deeply regrets the entry ban and urges it be lifted immediately," Unification Ministry spokesman Kim Hyung-seok told reporters.
"Ensuring the safety of our citizens is our top priority and the South Korean government will take necessary measures based on this principle," he said.
The entry ban is not unprecedented - South Koreans were briefly denied access in March 2009 because of US-South Korea military exercises.
A trickle of cars are crossing back into the South, says the BBC's Lucy Williamson, who is at the border, but some South Korean workers have decided to stay because they fear they will not be allowed back in again.
Anything that affects operations at Kaesong is seen as particularly crucial because North Korea badly needs the revenue it generates, our correspondent adds.
'Reckless'
North Korea, which has been angered by UN sanctions imposed after its recent nuclear test and annual US-South Korea military drills, threatened to shut down the complex last week.
In recent weeks it has also threatened attacks on US military bases in Asia and South Korean border islands.
On Tuesday it said it planned to restart its mothballed reactor at Yongbyon - the source of plutonium for its nuclear weapons programme.
Late on Tuesday, US Secretary of State John Kerry called recent North Korean actions "dangerous" and "reckless".
"Let me be perfectly clear here today. The United States will defend and protect ourselves and our treaty ally, the Republic of Korea (South Korea)," he said after talks with his South Korean counterpart Yun Byung-se.
In recent days the US has responded to North Korea with a series of high-profile flights of advanced aircraft, including stealth fighters and nuclear-capable B-52 bombers, over South Korea.
Officials have also confirmed that the USS John McCain, an Aegis-class destroyer capable of intercepting missiles, has been positioned off the Korean peninsula.
A second destroyer, the USS Decatur, has been sent to the region.
Earlier on Tuesday UN Secretary-General Ban Ki-moon had warned that the crisis had "gone too far" and called for urgent talks with the North.
"Things must begin to calm down, there is no need for the DPRK [North Korea] to be on a collision course with the international community. Nuclear threats are not a game," Mr Ban said.
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