Under an agreement with the U.S., first signed in 1979 and revised in 2001, the range of South Korean ballistic missiles is limited to 300 kilometers and their payload to 500 kilograms. The agreement is up for renewal at the end of this year.
South Korea wants to lengthen its missile range, but Washington fears that the South Korean move, if endorsed, could spur an arms race in the region.
The bilateral talks between Seoul and Washington drew fresh public attention in South Korea following North Korea's launch of a long-range rocket in April, prompting Seoul's military to announce plans to bolster its missile arsenal.
"Working-level consultations on extending our missile range are continuing, but the two sides have failed to find common ground," the source said on the condition of anonymity.
The source said that it would be difficult for South Korea and the U.S. to reach an agreement by the end of this month.
"The U.S. side is still opposed to extending the missile range," the source said.
Whenever North Korea intimidates others with its missile or nuclear programs, calls spike in South Korea for longer-range missiles to counter the threats. Since 2010, South Korea and the U.S. have been in talks to revise the missile range pact, though few details have been released.
Earlier in the day, a local newspaper, the JoongAng Ilbo, reported that South Korea and the U.S. have agreed to extend Seoul's missile range to 550 km, and the two sides plan to announce the agreement in the middle of this month, when foreign and defense chiefs from the two nations hold a so-called "two-plus-two" security meeting in Washington.
Kim Min-seok, a spokesman at Seoul's defense ministry, denied the report, saying the allies have made "no decision" over the issue.
There has been no decision made on whether the issue will be raised at the Washington meeting involving Foreign Minister Kim Sung-hwan, Secretary of State Hillary Clinton, Defense Minister Kim Kwan-jin and Defense Secretary Leon Panetta, Kim told reporters.