By Jon Herskovitz

SEOUL, Aug 1 (Reuters) - Taliban insurgents, who have killed two Korean hostages and are threatening to kill more of the 21 they still hold, have been in touch with the South Korean government, a Seoul official said on Wednesday.

"The Taliban from time to time call us at the embassy in Afghanistan," said the official, who asked not to be identified. "We cannot confirm the content of those discussions."

South Korea concedes it has few cards to play and has called for "flexibility" to resolve the stand-off -- a comment analysts say is mostly directed at Washington to pressure the Kabul government to strike a deal with the kidnappers.

But a U.S. State Department spokesman said Washington "does not make concessions to terrorists".

South Korea has sent a special envoy to Kabul, who has held talks with Afghan officials including President Hamid Karzai.

Nearly two weeks ago, Taliban militants kidnapped 23 Koreans, including 18 women, sent by a Christian church in suburban Seoul to do relief work in the country. The leader of the group, Bae Hyung-kyu, was killed last Wednesday, on the day he turned 42.

Afghan authorities on Tuesday recovered the body of Shim Sung-min, 29, the second South Korean male hostage killed by the Taliban.

"If the Kabul administration and Korean government do not give a positive reply to our demand about the release of Taliban prisoners by tomorrow 1200 (local time, 0730 GMT Wednesday), then we will start killing other hostages," Taliban spokesman Qari Mohammad Yousuf told Reuters by telephone from an unknown location.

Karzai's spokesman said bowing to Taliban demands would encourage more kidnapping, adding "we are doing what is the best for the interests of the hostages, and government".

Karzai came under harsh criticism in March for releasing a group of Taliban prisoners in exchange for an Italian journalist.

Taliban spokesman Yousuf said Afghan negotiators had not contacted the Taliban since the second hostage was killed on Monday and said the insurgents suspected the Afghan government and foreign troops were planning a rescue bid.

South Korea's spy chief said on Wednesday the kidnappers were changing locations frequently to evade Afghan.

International forces and the hostages are believed to be split up and held at nine villages in three regions, according to a member of parliament's intelligence committee. (With additional reporting by Jack Kim in Seoul and Yousuf Azimy in Arzoo, Afghanistan)

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