North Korea, during rare talks with the South, has said it will send athletes, a cheer squad and a delegation of high-ranking officials to the Pyeongchang Winter Olympics next month.

Key points: South Korea proposed that the two nations march together at the opening ceremony

South Korea proposed that the two nations march together at the opening ceremony The South also proposed military talks with North Korea

The South also proposed military talks with North Korea There are hopes for family reunions to be held in February

Seoul proposed athletes from the two Koreas march together at the opening ceremony, and engage in other joint activities during the Winter Games.

Athletes from the two Koreas have paraded together at the opening and closing ceremonies of major international games before, although it has not been seen since the 2007 Asian Winter Games in China after relations chilled under nearly a decade of conservative rule in the South.

It would also be the first time since 2005 for the North to send its female cheerleaders, dubbed the "cheering squad of beauty" by South Korean media.

The South said it would consider a temporary lifting of sanctions against North Korea if it was necessary to facilitate the visit.

"North Korea said that they are determined to make today's talks fruitful, and make it a ground-breaking opportunity," South Korea's vice unification minister Chun Hae-sung told reporters.

Mr Chun said the South Koreans proposed resuming negotiations over the North's nuclear program, but neither side made significant statements on nuclear disarmament.

Jean Lee, a global fellow at the Wilson Centre, told the ABC this could be "a red line" for the North and cautioned South Korea should be very careful moving forward, calling North Korea "savvy negotiators".

"This is an opening and if they play this right it could have ramifications beyond the Olympics," she said, adding that the North's attendance would give the South much needed security assurance.

"Instead of the spectre of a nuclear disaster, they now have the novelty of North Korean athletes."

Ms Lee also said the family reunions could be the last chance for many Koreans to see family members for the first time in 50 years.

North Korean officials said during the meeting they were open to promoting reconciliation between the two countries through dialogue and negotiation, according to Mr Chun.

The meeting continued after the two sides broke up for separate lunches. It is being held at the three-storey Peace House, located just across the demilitarised zone on the South Korean side of Panmunjom truce village.

Sorry, this video has expired Former AP Pyongyang bureau chief Jean Lee discusses the talks.

South Korean media said North Korea had restored the military hotline with the South, in the second reopening of a suspended inter-Korean communication channel in about a week.

All major inter-Korean communication channels had been shut down amid animosities over the North's nuclear program in recent years. But North Korea reopened its cross-border hotline last week as signs emerged of improving ties.

The talks were being closely watched by world leaders eager for any sign of a reduction in tensions on the Korean peninsula amid rising fears over North Korea's missile launches and development of nuclear weapons in defiance of United Nations Security Council resolutions.

The talks came after North Korean leader Kim Jong-un used his New Year's Day speech to announce he was open to sending a delegation to the Olympics as well as reducing tensions on the Korean Peninsula, while vowing to never give up his nuclear weapons program.

North Korean officials said they were open to promoting reconciliation between the two Koreas. ( AP: Korea Pool )

Optimism on both sides ahead of talks

The head of the North Korean delegation, Ri Son Gwon, said North Korea entered the talks with a "serious and sincere stance".

South Korean Unification Minister Cho Myoung-gyon also expressed optimism as the meeting began.

"Our talks began after North and South Korea were severed for a long time, but I believe the first step is half the trip," Mr Cho said.

"It would be good for us to make that 'good present' you mentioned earlier."

Just before the delegation drove into the demilitarised zone, some 20 South Koreans were seen waving a banner that read: "We wish the success of the high-ranking inter-Korean talks."

One man was spotted waving a flag with a unified Korean peninsula.

The delegations were made up of five senior officials from each side.

The North Korean delegation walked over the border inside the joint security area to the Peace House around 10:30am (local time), an official from the South's Unification Ministry told reporters.

The United States, which has 28,500 troops stationed in South Korea as a legacy of the 1950-1953 Korean War, initially responded coolly to the idea of inter-Korean meetings, but US President Donald Trump later called the talks "a good thing".

Mr Trump has said he would like to see talks go beyond the Olympics.

"At the appropriate time, we'll get involved," he said.

A visitor walks by a wire fence in South Korea decorated with ribbons carrying messages wishing for reunification. ( AP: Lee Jin-man )

ABC/Reuters