Republic of Korea's (ROK) President Moon Jae-in said Seoul would increase military spending and urged the Democratic People's Republic of Korea (DPRK) to return to dialogue in a budget speech on Tuesday that could infuriate Pyongyang with nuclear talks gridlocked. 

Contact between DPRK and ROK stalled after the collapse of a February summit between DPRK leader Kim Jong Un and U.S. President Donald Trump in Hanoi. 

Since then Pyongyang has excoriated its neighbor over joint military drills with the U.S., and the acquisition of American fighter jets. 

It is a far cry from the cross-border warmth of last year, when Moon seized on the Pyeongchang Winter Olympics to broker the DPRK-ROK discussion process and held three summits himself with Kim. 

The ROK will increase defense spending by 7 percent to more than 50 trillion won (42 billion U.S. dollars) next year, Moon told parliament, emphasizing that "strong defense" was crucial for "self-determination". 

"We will strengthen the core defense system by boosting assets such as next-generation submarines and surveillance satellites." 

The announcement came after DPRK this month tested what it said was a submarine-launched ballistic missile that marked a "new phase" in its capabilities - the most provocative in a series of weapons tests it resumed after an 18-month hiatus. 

The DPRK is under multiple sets of UN sanctions over its nuclear and missile programs. 

Pyongyang and Washington restarted working-level talks in Sweden this month only for them to quickly break down, with the DPRK blaming the U.S. for not giving up its "old attitude" and setting the end of this year as deadline for Washington to change its stance. 

It has also said it has nothing more to talk about with Seoul, and condemned joint ROK-U.S. drills and the deployment of F-35A fighter jets in the ROK as rehearsals for invasion and violations of Seoul-Pyongyang agreements. 

But Moon - who has long championed engagement with Pyongyang - held out hope for a breakthrough despite the setbacks, claiming that the deadlocked talks were the "last hurdle" before denuclearization. 

A "bright future" for the DPRK would only be possible on the basis of a "peace economy" driven by inter-Korean economic projects, he said. "I urge the North (DPRK) to respond."