The move could rock the foundation of the complex that has been hailed as the crowning achievement of the 2000 inter-Korean summit and withstood pitfalls such as the sinking of a South Korean warship and the shelling of Yeonpyeong Island in 2010.
A statement issued by Kim Yang-gon, a member of the North Korea's ruling Workers' Party Central Committee, and carried by the Korean Central News Agency (KCNA), said all North Korean workers will be pulled out from the border town located just north of the demilitarized zone. It did not give a deadline for the move, although it could take place as early as Tuesday.
The KCNA monitored here said the official made clear that the complex will be "suspended temporarily," and that Pyongyang will examine the issue to see whether it will allow it to reopen in the future. Kim also emphasized that the complex's future will depend entirely on South Korea.
"The Kaesong zone is now in the grip of a serious crisis," said the news wire service, quoting the official.
The senior official, who as head of the United Front Department is in charge of the North's South Korean operations, had visited the complex earlier in the day, and met with North Korean officials at the site. He called for everyone to be prepared for any developments that may occur.
Kim then claimed that South Korean warmongers were trying to turn Kaesong into an arena to fuel inter-Korean confrontations and create a flash point to start an invasion of the North.
He pointed out that claims made by South Korean conservative forces that the DPRK will never give up the zone as the communist country benefits from the industrial zone is a distortion of facts. The DPRK stands for the Democratic People's Republic of Korea, the North's official name.
"The DPRK provided an area of military strategic importance to the south side, this means a big concession," he said.
The official said the North's latest actions reflect the resolve that the complex cannot be used as an excuse to start military aggression.
The comment comes after the communist nation last Wednesday banned South Korean workers and materials from entering the complex.
Related to the KCNA's announcement, the Unification Minister Ryoo Kihl-jae said in a meeting with lawmakers that the North's decision to withdraw its laborers will only make things worse for them. He said that Seoul will confirm the latest developments and their impact before coming up with its own policy to handle the situation.
The Ministry of Unification, in charge of conducting talks with the North, issued a formal statement expressing deep regrets over the announcement made by Kim.
"The latest unilateral action cannot be justified in any way and full responsibility falls on the North," it said, adding that it will react calmly and resolutely to the indiscriminate actions taken by the North, with every measure being focused on ensuring the safety of the South Korean workers still at the complex.
Pyongyang has not officially announced that it wants all South Koreans to leave, but corporate sources confirmed that the North asked through the Kaesong Industrial District Management Committee that companies should only leave a very small number of people at the complex, with the rest leaving by Wednesday.
"They gave us signals that only bare essential personnel should remain," a corporate source said.
There are presently 475 South Koreans in Kaesong, with a total of 39 workers having crossed over to the South during the day. On Tuesday, 77 workers are expected to return here, although that number may change after consultations between the unification ministry and the businesses on Tuesday.
The presidential office of Cheong Wa Dae also convened a emergency meeting of the National Security Office to carefully examine the North's intentions. The office said President Park Geun-hye was immediately informed of the North's announcement and she issued orders to officials to respond in a calm and collected manner.
The Kaesong complex was created after the two sides signed an agreement calling for its creation in August 2000 with its groundbreaking ceremony taking place in June 2003 and the first goods being produced there in late 2004. The South has invested 900 billion won (US$802 million) into Kaesong so far with output reaching $469.5 million worth of goods as of 2012, despite chilly South-North Korean relations.
On potential damages, Cho Bong-hyun, an analyst at the IBK Economic Research Institute, said based on past data, if the complex is shut down and companies at the zone go bankrupt, economic damages could reach 6 trillion won.
In 2009, the North limited access to Kaesong twice, but had never taken steps to halt operations.
Others such as Lim Eul-chul, a research professor at Kyungnam University, said the move to pull out its workers can be seen as increasing the ante in the face of international sanctions slapped on the North for conducting its third nuclear test on Feb. 12 and as a statement of resolve in the face of joint South Korea-U.S. military exercises, that it claims are a dress rehearsal for nuclear war.
Chang Yong-seok, a senior researcher at the Institute for Peace and Unification Studies at Seoul National University, said by raising tensions the North may be trying to pressure the South to alter its policies that has shown no real signs of accommodating Pyongyang.
Experts said that Seoul, with limited options, will respond to developments as they occur, with some waiting to see if there will be a change in policy to contain tensions.
On the latest move taken by the North, the ruling Saenuri Party and the main opposition Democratic United Party (DUP) both expressed grave concerns over possible fallout to deteriorating inter-Korean relations.
Saenuri concentrated its attacks against the North for taking the latest move, while the DUP urged restraint and claimed Kaesong is crucial for maintaining peace on the Korean Peninsula. It called on the government to engage Pyongyang in dialogue and said the North must also take steps to normalize operations at the industrial park.