North Korea has withdrawn from the inter-Korean liaison office which was opened amid a warming of ties last year to facilitate talks with the South.
Seoul said it was contacted on Friday and informed that the North’s staff would be leaving later in the day.
It has expressed its regret at the decision and is urging staff from the North to return as soon as possible.
The pullout follows a failed summit between the US and North Korean leaders in Hanoi last month.
The liaison office, located in the North Korean border city of Kaesong, had allowed officials from North and South Korea to communicate on a regular basis for the first time since the Korean War.
It is meant to be staffed by up to 20 people from each side.
When the office was opened in September 2018, it was hailed as representing a significant step forward in inter-Korean relations.
The two sides had in the past communicated by fax or special phone lines, which would often be cut when relations soured.
President Moon had hoped his diplomatic relationship with North Korean leader Kim Jong-un would survive even if talks between the US and the North broke down.
At the moment, this position looks questionable. Mr Moon was counting on his skills as a mediator to try to get US-North Korea talks back on track. But Pyongyang now appears unwilling to talk to Seoul and Mr Moon may not have the influence he needs to get Donald Trump and Kim Jong-un back to the negotiating table.
North Korea may also be asking itself – what is the point of talking to the South? Before the Trump-Kim summit in Hanoi, the two sides were discussing ways to develop economic ties. South Korea had hoped to ask for sanctions exemptions from the US to take part in part in various projects, but Donald Trump has made it clear that will not be acceptable.
Pyongyang concluded in a recent newspaper editorial that South Korea can do nothing without US approval.
This announcement will also test the patience of South Korean people. They watched the soaring rhetoric between the two Korean leaders as they held hands during their historic summits last year.
Many started to believe, that after 70 years of false hope, this time would be different. But North Korea is now walking away from the pledges it made and this latest development will be seen by many as a sign that peace is once again a distant prospect.
Since last month’s failed summit in Vietnam between the US and North Korean leaders, Pyongyang has warned that it could resume missile and nuclear testing.
Vice Foreign Minister Choe Son-hui said earlier this month that Washington threw away “a golden opportunity” at the summit.
President Trump had said at the time that Mr Kim had asked for the removal of all sanctions – which the US could not agree to. But Ms Choe said that the North had only asked for five key economic sanctions to be lifted.
US officials have insisted that diplomacy is still “alive”.