By David Brunnstrom

WASHINGTON (Reuters) - The United States said on Monday it had sanctioned a Chinese industrial machinery and equipment wholesaler, a new step in tightening the financial noose around North Korea's nuclear program after its fifth nuclear test this month.

The U.S. Treasury said it was sanctioning Dandong Hongxiang Industrial Development Co (DHID) and four of its executives, including the firm's founder, Ma Xiaohong, under U.S. regulations targeting proliferators of weapons of mass destruction.

It accused the firm of acting on behalf of North Korea's Korea Kwangson Banking Corp (KKBC), which has been under U.S. and U.N. sanctions for supporting proliferation of such weapons.

The U.S. Department of Justice said it had filed criminal charges against the Chinese firm and the executives for using front companies to evade sanctions on North Korea's nuclear weapons and ballistic missile programs.

The charges accuse the firm and the individuals of conspiring to violate sanctions rules and engaging in international money laundering. The Justice Department said bank accounts associated with the firm and front companies received hundreds of millions of dollars that transited through the United States.

"Today's action exposes a key illicit network supporting North Korea's weapons proliferation," Adam Szubin, the Treasury Department's acting under secretary for terrorism and financial intelligence, said in a statement.

"DHID and its employees sought to evade U.S. and U.N. sanctions, facilitating access to the U.S. financial system by a designated entity."

The announcement came after the White House said last week that President Barack Obama and Chinese Premier Li Keqiang agreed in New York on Sept. 20 to step up cooperation in the U.N. Security Council and in law-enforcement channels after North Korea's latest and largest nuclear test on Sept. 9.

CHINESE INVESTIGATION

China's Foreign Ministry said last week Hongxiang was under investigation following the provisions of U.N. resolution 2270, which imposed tighter sanctions on North Korea in March.

Story continues

Chinese embassy spokeswoman Fang Hong said Hongxiang Industrial Development Co was being investigated for "illegal behavior" and "economic crimes."

She said China had a "clear and consistent" position of opposing North Korea's development of nuclear weapons.

"We have been earnestly and faithfully implementing Security Council resolutions related to (North Korea) in their entirety and fulfilling our international obligations in non-proliferation export controls," she said.

On Monday, South Korea's JoongAng Daily newspaper reported that China was investigating a top official of the KKBC at its branch in the Chinese border city of Dandong.

South Korea said on Tuesday it "highly valued" Washington's action against the Chinese firm.

"By exposing the risks of trade with North Korea, we expect this measure to raise the alarm for individuals and entities in third countries as well as China that are trading with North Korea," South Korea's foreign ministry said in a statement.

While China is North Korea's sole major ally, it disapproves of its nuclear and missile programs and was angered by its latest nuclear test.

Beijing has said it will work within the U.N. to formulate a necessary response, but questions remain as to whether it is willing to agree tough enough steps to force North Korea to abandon nuclear weapons.

Discussions are under way on a possible new U.N. sanctions resolution and the senior U.S. diplomat for Asia said on Friday he was confident an agreement would be reached before long, imposing further sanctions and tightening existing ones.

Daniel Russel, the U.S. assistant secretary of state for East Asia, said the aims would include preventing North Korea's abuse of international infrastructure, including banking and shipping, to further its nuclear program.

In announcing Monday's sanctions, the Justice Department said it was seeking forfeiture of all funds held in 25 bank accounts associated with DHID and its front companies located in various banks in China.

"The charges and forfeiture action announced today allege that defendants in China established and used shell companies around the world, surreptitiously moved money through the United States and violated the sanctions imposed on North Korea in response to, among other things, its nuclear weapons program," U.S. Assistant Attorney General Leslie Caldwell said.

"The actions reflect our efforts to protect the integrity of the U.S. banking system and hold accountable those who seek to evade U.S. sanctions laws," she said in a statement.

(Reporting by Timothy Ahmann, Susan Heavey and David Brunnstrom; Additional reporting by Ju-min Park in SEOUL; Editing by Paul Simao and David Gregorio)