President Park Geun-hye was making a nationally televised parliamentary address defending her decision to shut down a jointly run factory park in North Korea.
She said South Korea will take unspecified “stronger, more effective” measures to make North Korea realise its nuclear ambitions will result only in speeding up its “regime collapse”.
Ms Park shut the park in response to the North’s recent long-range rocket test, which Seoul and Washington see as a test of banned ballistic missile technology.
North Korea last month also conducted a nuclear test. Both developments put the country further along it its quest for a nuclear armed missile that could reach the US mainland.
Ms Park said the North has diverted much of the Seoul payments to North Korean workers at the factory park to the Pyongyang leadership, which is in charge of nuclear and missile development.
She said the South has sent more than £2bn in government and civilian aid to the North since the mid-1990s. Much of the aid was made when South Korea was governed by liberal governments seeking rapprochement with North Korea from 1998 to 2003.
Ms Park said that South Korea must no longer provide large-scale aid to North Korea with few strings attached “like in the past”.