SEOUL, March 5 (Reuters) - The U.N. Development Programme, accused by Washington with possibly helping funnel hard cash to North Korea's leaders, has shut down its operations in the impoverished country.

"As of 1 March 2007, UNDP has no choice but to suspend its operations in DPRK (North Korea)," it said in a posting on its Internet site (www.undp.org/dprk/), adding it could not meet revamped conditions for its operations there.

"UNDP's position in DPRK could be reconsidered if these circumstances change," it said.

In January, UNDP changed its operations in the country to make sure Pyongyang does not hire staff for its programme.

Aid workers say government help is essential in hiring workers in the communist country, which has no private labour market. UNDP also suspended cash payments to the North Korean government and local suppliers.

Mark Wallace, the U.S. envoy for U.N. financial management, accused the UNDP in a letter in January of violating rules by hiring North Korean government officials and by paying salaries in cash through the government.

The United States said North Korea's demands on the programme, including payments in hard currency and hiring of local officials, may have led to millions of dollars being used to benefit North Korean leader Kim Jong-il, according to a letter obtained by Reuters.

North Korea said the U.S. charges were "a sheer fiction", its official media quoted a Foreign Ministry spokesman as saying.

UNDP has said there was no reason to believe its programmes were subverted in North Korea. The UNDP had some 20 projects in North Korea for economic and social development, the environment and food management.

The UNDP, which had some 16 North Koreans and four international staff, said North Korea handled $337,000 in UNDP funds over two years.

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