President Donald Trump has told members of his administration to prepare to exit a free trade agreement with South Korea, though he has yet to announce whether he will go through with the plan.
On Tuesday, North Korea fired a missile over Japan, prompting Trump to insist that "all options were on the table" in an implied threat of pre-emptive military action.
"The two leaders agreed to strengthen our alliance through defense cooperation and to strengthen South Korea's defense capabilities".
The Kim Jong-un regime has taken a jibe at the United States and its ally South Korea, saying any attempts by the "puppets" to locate North Korea's ballistic missile launchers will not produce any useful result.
"Sharing the view that South Korea needs to bolster its defense capabilities to counter North Korea's provocations and threats, the two leaders agreed in principle to revise the missile guidelines to a level that the South Korean side desires", the spokesman's statement said.
The two leaders spoke in a phone call Friday.
It came as US and South Korean forces were nearing the end of the 10-day annual Ulchi Freedom Guardian joint exercises, which the North regards as a rehearsal for invasion.
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South Korea's development of its ballistic missiles is limited to range of 800 km (500 miles) and payload weight of 500 kg (1,100 pounds) under a bilateral treaty revised in 2012.
North Korea defends its weapons programs as necessary to counter perceived USA aggression, such as recent air maneuvers with South Korean and Japanese jets.
Allowing South Korea more powerful weaponry signals to the North that Seoul will not necessarily be constrained by the United States and that it has an independent ability to react, Schuster said.
North Korea fired a Hwasong-12 missile - reportedly capable of carrying a nuclear payload - that traveled almost 2,700 kilometers into the Pacific and triggered alert warnings as it flew over northern Japan.
An apparent North Korean intermediate-range Hwasong-12 missile is launched in this photo released Wednesday, August 30, 2017. "The US. should make a switchover in its policy on the basis of recognizing the fundamentally changed DPRK strategic position and geographical influence", it said, using an acronym for the Democratic People's Republic of Korea.
South Korea is the U.S.'s sixth-largest trading partner, while the U.S.is South Korea's second-largest trading partner after China.