South Korea received exemptions from United Nations sanctions - created to pressure North Korea to relinquish its nuclear weapons - to survey conditions and hold Wednesday's ceremony. The agreement on the connection was reached during the first Moon-Kim summit in April. The peninsula remains technically at war with the armistice.
"South Korea is in a different position".
Speaking at the event, the North's Vice Railroad Minister Kim Yun Hyok called for an "unwavering determination to stand against headwinds" that could threaten the project.
"It is extremely regrettable that this kind of incident occurred and we will strongly urge South Korea to prevent a recurrence", the ministry said, adding that Japan is prepared to hold talks with South Korea as defense cooperation between them should not be damaged.
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Officials from both Koreas signed a wooden railroad tie, unveiled a new signboard and watched a ceremonial linking of tracks between North and South.
The latest removal of guard posts would leave South Korea with about 50 such DMZ posts and North Korea with 150, according to defense experts in South Korea.
The ambitious project is among a variety of peace gestures agreed between North Korean leader Kim Jong Un and liberal South Korean President Moon Jae-in as they push ahead with engagement amid a stalemate in larger nuclear negotiations between Washington and Pyongyang. He noted that the project would increase exchanges between the two governments.
Near the platform, a small group of around 10 protesters held banners denouncing the North's leader as a murderous dictator and condemning the transport linkage as aimed at communising the whole Korean peninsula.
The Kaesong factory park was shut down under the South's previous conservative government in February 2016 following a North Korean nuclear test and long-range rocket launch.
From the DPRK side, Ri Son Gwon, chairman of the Committee for the Peaceful Reunification of the Fatherland, and four other high-level officials participated in the event.
The South's delegation of approximately 100 members, headed by Transport Minister Kim Hyun-mee and Unification Minister Cho Myoung-gyon, arrived at Kaesong around 9 a.m. on a special train that departed from Seoul Station earlier that day.
The last rail service during the 1950-1953 Korean War came in 1951 when a train carrying wounded soldiers and refugees crossed into South Korea.
Describing the trip as a dream, Kim said the train ride to her hometown had been a big hope of hers.
South Korea plans to conduct further surveys on North Korean railways and roads before drawing up a blueprint for the project.
Similar groundbreaking ceremonies were held in 2000 and 2002 but failed to bring about lasting progress.
Moon's rapprochement toward North Korea included three summits with Kim Jong Un this year, but have been limited by global sanctions and the slowing pace of diplomacy between the two sides. But negotiations have made little headway, with Pyongyang upset at Washington's insistence that sanctions remain until the North takes concrete steps to give up its nuclear arsenal.
The diplomats also discussed the North Korean nuclear issue and how Seoul and Tokyo could help restart talks between the United States and North Korea, South Korea's foreign ministry said in a statement.