Hardliners in the Bush administration appear to be winning an internal struggle for control over policy towards North Korea, shifting the focus to containing the communist regime and crippling its illicit source of finances at the expense of diplomatic negotiations over its nuclear programme.

US officials and analysts say Chris Hill, the State Department's chief negotiator in six-nation talks with Pyongyang, risks being marginalised in a policy battle that has characterised divisions within Washington since President George W. Bush took office in 2001.

The outcome remains uncertain as the envoy seeks to push back, analysts said. "It is feeding time for the hardliners," said one official who asked not to be named.

Equally uncertain is whether North Korea will return to the negotiating table in Beijing next month as tentatively scheduled following the last round of inconclusive talks in November.

In its latest riposte, North Korea's foreign ministry yesterday said Pyongyang would increase its nuclear deterrent "to cope with the US escalated policy to isolate and stifle it with the nuclear issue and the 'human rights issue' as pretexts".

"It's hard to find people who are optimistic now," commented Bruce Klingner, Korea analyst at the Eurasia Group, a political risk consultancy. "I think the window of optimism closed in September."

In September, the six parties - pushed along by hosts China - broke a prolonged deadlock and agreed in principle to reward North Korea for abandoning its nuclear weapons programme.

Days later the US launched a series of new actions aimed at crippling North Korea's alleged growing dependency on making and trading narcotics, counterfeiting US dollars and cigarettes, trading in sanctioned items such as rhino horns, ivory and conflict diamonds, money laundering and weapons sales.

Sanctions were placed on Macao-based Banco Delta Asia, alleging it helped Pyongyang's illegal acts. The US then targeted the assets of eight North Korean companies that it claimed helped proliferate weapons of mass destruction (WMD). Last week the Treasury's Financial Crimes Division warned banks worldwide to take "reasonable steps" to prevent abuse of their financial services by North Korea.

"This is a criminal regime," explained Alexander Vershbow, the new US ambassador to South Korea, in comments that raised the level of anxiety in Seoul.

David Asher, until recently a State Department official, said North Korea had become a "soprano state" - a reference to the hit television series about a US Mafia boss.

The actions of the ruling Workers party leadership "increasingly resemble those of an organised crime family", he told the Woodrow Wilson policy centre, recalling that the counterfeiting of another nation's currency was an established casus belli or justification for war.

Robert Joseph, US undersecretary for arms control, and the office of Dick Cheney, vice-president, are the driving forces behind this tougher approach that analysts say is based on the belief North Korea's nuclear threat will only be truly eliminated by a change of regime.

Mr Joseph revealed this month he had travelled to central Asia to secure the support of governments to join the US-led Proliferation Security Initiative that seeks to co-ordinate interdiction efforts aimed at the nuclear and WMD programmes allegedly pursued by North Korea and Iran.

Mr Joseph said in a December 9 speech that US efforts to combat WMD proliferation had to embrace all elements of national and international power.

Charles Pritchard, an analyst at the Brookings Institution think-tank and a former US envoy to talks with North Korea, has charted the shifts in policy towards Pyongyang. The move tow-ards engagement began some six months ago and was variously signalled, including Mr Bush's reference to Kim Jong-il, the North Korean leader, as "Mr" Kim.

Most important was the decision to give Mr Hill the space to engage in meaningful negotiations, allowing him to concede in September that North Korea would be allowed in principle to develop nuclear energy for electricity.

Mr Pritchard, at a conference on December 1, said the US was clearly pursuing two distinct policy tracks simultaneously. But it was not clear if they were co-ordinated.

"The most chilling aspect of this re-emerged bifurcation of US policy towards North Korea is the potential that Ambassador Hill has lost a skirmish or two within the administration, and in an effort to maintain his goal of best-effort negotiating, he has had to adopt some of the philosophy and language of the second-track advocates [led by Mr Joseph]," Mr Pritchard said.

It remained to be seen, the former envoy concluded, whether Mr Joseph had succeeded in capturing the lead, or whether Mr Hill could bounce back.

Mr Hill was not available for comment.