North and South Korea have agreed to form their first-ever joint Olympics team and march together under a "unification flag" at the opening ceremony of the 2018 Winter Games next month.

The breakthrough on Wednesday follows a year of escalating tensions on the Korean Peninsula, amid several missile launches and a purported test of a hydrogen bomb by the North.

The two countries will field a single women's ice hockey Olympics team, South Korea's Yonhap news agency said, quoting a joint statement by officials from both countries.

Both Koreas have appeared together at the openings of previous Olympic Games, but this would be the first joint team in one sport.

Yonhap said the North will also send a 230-member cheering squad and a 30-member taekwondo team to the games, which will take place in the South's Pyeongchang from February 9 to 27.

The North's Olympic delegation will use a land route to cross into the South. That will mark the opening of the land border road for the first time since February 2016, the agency said.

North Korea will also send a delegation to the Paralympics in Pyeongchang in March.

'Great opportunity'

The two countries are still technically at war, because the 1950-53 Korean conflict ended with a truce and not a peace treaty.

Earlier on Wednesday, during a meeting with Olympic athletes, South Korea's President Moon Jae-in hailed the North's participation in the Winter Games as "a great opportunity to thaw the South-North Korea relationship that is frozen solid".

The agreement followed a third round of inter-Korea talks at the border village of Panmunjom, the first high-level talks between the two Koreas in more than two years.

The measures agreed on by North and South Korea require approval by the International Olympic Committee (IOC); delegates from the two Koreas will meet IOC officials in Switzerland this weekend.