North Korea's latest nuclear test and long-range rocket launch has prompted the Korean Peninsula to slide into a Cold War-like rivalry, with China's state-run media keeping a wary eye on a shift in the security balance in East Asia.

A day after South Korea decided to halt operations at an inter-Korean industrial park inside North Korea, considered a major source of hard currency for the isolated regime, North Korea kicked out all the South Koreans in the Kaesong industrial park, calling Seoul's decision a "declaration of war."

The escalation of tension came days after South Korea decided to start formal talks with the United States to adopt an advanced American missile defense system, or the Terminal High-Altitude Area Defense battery.

With North Korea continuing to develop its nuclear and missile arsenals, analysts in Seoul say South Korea has no choice but to adopt the THAAD battery, which would be deployed at a U.S. base in South Korea, home to about 28,500 American troops.

China's state media warned of a possible arms race if the THAAD battery is deployed in South Korea, while expressing anxiety about a stronger three-way military alliance among South Korea, the U.S. and Japan.

"The likely THAAD deployment, which also came a month after the DPRK conducted its fourth nuclear test, is detrimental to the efforts to solve the nuclear issue on the Korean Peninsula as it is likely to trigger an arms race in the troubled region," state-run Xinhua News Agency in a commentary.

The Global Times newspaper, published by China's ruling Communist Party, said in an editorial this week that Beijing will strengthen its own military capability if the THAAD battery is deployed in South Korea.

"If THAAD takes root in South Korea, it will be officially considered as a target of research by the Chinese military from both the strategic and tactical dimensions," the editorial reads.

"There have been an increasing number of uncontrollable factors in China's periphery, with the US constantly stirring up in the security field," it said. "China should enhance its comprehensive defense strength to deal with these challenges. The degree of China's strength will determine the nature of these challenges."

Still, the U.N. Security Council members remain divided over how to punish North Korea for its fourth nuclear test on Jan. 6, with China, one of five veto-wielding council members, reluctant to put crippling sanctions on North Korea.

Analysts say China's leadership is reluctant to impose tougher sanctions on North Korea because a sudden collapse of the regime could spark a refugee crisis at its border and lead to a pro-U.S., democratic Korea on its doorstep.

A retired Chinese colonel Yue Gang told Hong Kong-based South China Morning Post that one of China's top concerns was that THAAD would gradually lead to an alliance between South Korea, the U.S. and Japan.

"After THAAD is in place in South Korea, the next step is to link up with the missile defense system in Japan. This will see South Korea gradually forming a military alliance with US and Japan, much like a mini-NATO. China is desperately trying to avoid this because the military threat then would be much more than just a ballistic missile defense system," Yue was quoted as saying by the paper.

In the latest sign of bolstering military cooperation among South Korea, the U.S. and Japan, top military officials from the three nations held trilateral talks on Thursday during which they agreed to step up information-sharing and security coordination against North Korea's nuclear and missile threats.

A diplomatic source in Beijing said, "The recent developments on the Korean Peninsula are posing a big challenge to China. The future steps by China will be taken in order to meet its national interests." (Yonhap)