North Korea has moved to restart its Yonbyon reactor
US envoy Christopher Hill has arrived in North Korea to try to salvage an international disarmament-for-aid deal.
North Korea has recently reneged on the deal, angry that it is still on the US terrorism blacklist despite submitting an account of its nuclear facilities.
In August it stopped dismantling its main reactor at Yongbyon, and has now started restoring the complex.
Mr Hill is expected to suggest some form of compromise agreement during his visit to Pyongyang.
In a sign of the challenges facing the nuclear deal, South Korea's Yonhap news agency reported on Wednesday that the North might also be starting to restore the site where it conducted its first nuclear test in 2006.
Smoke was seen rising from the site in the country's remote north-east, a government source told Yonhap.
"We are closely watching to determine whether North Korea is working to repair the nuclear site," the source said.
But in a positive sign, North and South Korea have agreed to hold military talks on Thursday - the first official meeting between the two states since South Korean President Lee Myung-bak took office in February.
A South Korean defence official said the talks would take place at the Panmunjom truce village on the heavily fortified border.
The two Koreas have been technically at war since the 1950-53 conflict ended in a truce and not a peace pact.
For years Pyongyang has been locked in talks over its nuclear ambitions with the US, China, Japan, Russia and South Korea.
A deal was agreed last year and Pyongyang began dismantling its facilities in November 2007.
Mr Hill is on his third trip to Pyongyang since last December
It handed over documentation on the programme in June this year, but Washington demanded further verification of the claims before removing the North from its list of states sponsoring terrorism.
Pyongyang refused and has now made moves to restart its plutonium reprocessing activities - which experts believe could be up and running within months.
An unnamed Washington official told the Associated Press news agency that Mr Hill would offer Pyongyang less stringent verification requirements in return for removing the state from the terrorism list on a provisional basis.
The official said Mr Hill would run through the new verification procedure word-by-word to try to tackle any concerns the regime might have.
Mr Hill was circumspect when asked before his trip how likely he was to seal a deal.
"I can't really tell you what is going to happen in Pyongyang," he said.
"Obviously, we are going to try to get through phase two... namely the need to have an agreement on what verification will look like."
"I would say we are in a difficult and very tough phase of negotiations," he added.
Mr Hill's visit has added complications as it comes amid rumours that the North's reclusive leader, Kim Jong-il, is seriously ill.
Analysts say the confusion over who is running North Korea could affect the negotiations.