North Korea appears to be gearing up for a major military exercise, a report said, amid tensions over an expected missile test and South Korea's pullout from a joint industrial complex.

Preparations are under way near the North's western port of Nampo for a combined live-fire drill involving artillery units and air force jets, the South's Yonhap news agency said, citing a Seoul government source.

"It appears that the scale of the drill will be quite big," the unnamed official was quoted as saying, voicing fears of military provocations against the South or a missile test by Pyongyang during the exercise.

A North Korean artillery attack on a South Korean island in November 2010 killed four people. Seoul also holds Pyongyang responsible for the sinking of one of its naval vessels with the loss of 46 sailors the same year.

Angered by new United Nations sanctions over its third nuclear test in February and joint South Korea-US military drills -- due to end on Tuesday -- the North has for weeks been issuing threats of missile strikes and nuclear war.

The expected missile launch has kept Seoul and Washington on heightened alert for the past month, particularly on key dates such as the founding anniversary of the North's military and the birth of its late founding leader.

But Pyongyang, which has a habit of linking high-profile military tests with key dates, celebrated the key dates without the test, fanning speculations that the wait may even take months.

Another Seoul military official quoted by Yonhap said the North may try to "fan military tension" after South Korea pulls out all its remaining workers from a jointly run factory park.

Kaesong -- built in 2004 just north of the border as a rare symbol of inter-Korea cooperation and a valued source of hard currency for the impoverished North -- has fallen victim to the growing cross-border tensions.

Seoul on Friday announced that it would withdraw all of its remaining workers from the site after Pyongyang rejected its ultimatum to join formal negotiations on restarting the stalled operations.

Dozens of workers returned on Saturday and the remaining 50 are expected to leave on Monday, a move that experts say could lead to the permanent closure of the complex, seen as a bellwether of stability on the Korean peninsula.