North Korea has said it is ready to talk if UN sanctions against it are withdrawn and the US and South Korea put an end to joint military drills.
The conditions for dialogue were outlined in a statement from the North's National Defence Commission and carried on official news agency KCNA.
But South Korea's Foreign Ministry brushed off the North's demands, calling them "incomprehensible".
Tensions have been high since North Korea's third nuclear test in February.
North Korea has consistently cited the UN sanctions and the joint military drills between South Korea and the US as reasons for its rising rhetoric.
In recent weeks, the North has threatened to attack South Korea, Japan and US bases in the region.
"If the US and the South enemies... genuinely want dialogue and negotiation, they should take these steps," the defence commission said.
"The first step will be withdrawing the UN Security Council resolutions cooked up on ridiculous grounds," the statement said.
"Second, you need to tell the whole world that you will not get involved in any rehearsal for a nuclear war that threatens our nation. Dialogues and war games can never go together," it added.
But a spokesman from South Korea's Foreign Ministry rejected the North's demands.
"North Korea's demands are totally incomprehensible. It's absurd," spokesman Cho Tai-young said.
"We strongly urge the North to stop making such incomprehensible demands and to make the wise choice we have repeatedly urged," he added.
A spokesman for North Korea's major ally China said on Thursday that talks were the only way to ease tensions on the Korean peninsula.
Meanwhile, South Korea's defence ministry said it will be holding a video conference with the US Joint Chiefs of Staff on Thursday.
"We are expecting to discuss how South Korea and the US can co-operate to cope with North Korea's threats, to analyse North Korea's threats and to discuss how to further improve the South Korea-US military relationship," ministry spokesman, Kim Min-seok, said.
South Korea made a conditional offer of talks with the North on Sunday, but the North has said that it was merely a "crafty trick".
The US has also said it is willing to hold talks with North Korea, but only if previous agreements on disarmament are upheld.
For his part, UN Secretary-General Ban Ki-moon urged North Korea to "seriously" consider a dialogue with the South about the Kaesong Industrial Complex.
"I firmly believe that the recent offer of dialogue by the Republic of Korea is genuine and hope that the DPRK [North Korea] takes it seriously," Mr Ban said on Wednesday.
Kaesong, located inside North Korea just across the demilitarised zone from South Korea, is largely financed by the South to increase co-operation.
The North has blocked access to Kaesong since 3 April.
A heightened state of vigilance has been in place for the past week in South Korea over concerns that North Korea could test fire an intermediate range missile.
There was speculation that the North would use Kim Il-sung's birth anniversary on Monday for a missile launch, following reports that it had moved at least two Musudan ballistic missiles to its east coast. But the celebration has been relatively quiet and there has been no missile test.