It also announced it would not take any new steps to enforce UN sanctions imposed on the North following its October 9 nuclear test, saying it already had stronger measures in place than any other country.
Seoul's "sunshine" engagement policy with the North -- in particular two joint projects which have earned Pyongyang almost a billion dollars -- has come in for fierce criticism since the test.
It has also come under US pressure to join the Proliferation Security Initiative (PSI) drills to curbs shipments of weapons of mass destruction.
Seoul and other nations must report to the United Nations by Monday on steps they are taking to comply with the sanctions, which authorise cargo inspections among other measures.
"The government has declared that it has a special status of officially supporting the goals and principles of the PSI while not formally joining it, in consideration of special circumstances on the Korean Peninsula," said deputy foreign minister for arms control, Park In-Kook.
He said this would end the possibility of naval clashes off the peninsula.
Park said Seoul was "faithfully implementing measures" aimed at stopping North Korea from trading in weapons of mass destruction and related items.
The government would modify or strengthen existing regulations to fulfil its commitments more faithfully.
Late last month, the government announced a travel ban on North Korean officials involved with weapons programmes and said it was tightening inspections of goods and materials shipped to the North.
The unification ministry told the same press conference it had already taken various punitive measures, regardless of the UN sanctions, since Pyongyang's July missile tests.
"The government has suspended some 80 percent of the total volume of inter-Korean economic co-operation since the July missile tests," said deputy minister Lee Kwan-Sei.
Out of the previously-agreed 454 million dollars of economic exchanges this year, only 94 million dollars had been spent by the South, Lee said.
"It is a stronger measure than any other countries have taken so far," he added.
After the missile tests, South Korea suspended regular humanitarian aid shipments to the North worth tens of millions of dollars.
Lee also said Seoul had suspended a government subsidy for tours by students or the disabled to the Mount Kumgang resort, and was suspending its plan to expand the industrial estate at Kaesong.
The two projects in the North are funded by the South, which has vowed to maintain them as a symbol of rapprochement.
The main opposition Grand National Party blasted the government's refusal to undertake cargo searches.
"This is a declaration that it will voluntarily isolate itself from the international community. If security collapses on the Korean Peninsula, the ruling party should take all responsibility," said spokesperson Na Kyung-Won.
Officials have said they did not want to further alienate the North, after it agreed this month to return to six-nation talks on scrapping its nuclear programme.
The International Crisis Group, in a report published on Monday, said the Seoul administration was deeply split.
The foreign and defence ministries wanted to get tougher with the North while the presidency and unification ministry remained committed to engagement, it said.
The UN sanctions demand the elimination of all North Korean nuclear weapons, weapons of mass destruction and ballistic missiles.
They provide for a travel ban on officials working on such programmes and a ban targeting missiles, tanks, large artillery systems, warships and combat aircraft.
Shipments of luxury goods are also banned.

Copyright AFP (Agence France-Presse), 2006