North Korean premier Kim Yong-il and South Korea's Han Duck-soo met in the Sheraton Grande Walkerhill Hotel in northwest Seoul for the first of three days of talks.
The sides are expected to discuss wide-ranging economic aid projects to build up the impoverished North's ageing infrastructure, including a railway link, creating a fishing zone, shipbuilding projects and the joint use of ports.
Opening the talks, the South Korean premier called for economic programs to be launched as soon as possible.
South Korean Unification Minister Lee Jae-joung told a news conference after the premiers' first session that the sides also discussed the issue of South Koreans abducted by the North, some of whom are still being held by Pyongyang.
"The need to push forward with resolving issues concerning of separated families, including abductees and war prisoners, was highlighted at the meeting," the minister said.
The presidents of North and South Korea, Kim Jong-il and Roh Moo-hyun, met in Pyongyang in early October, in only the second-ever inter-Korean summit in the North's capital, and signed a historic joint declaration pledging a commitment to peace talks and economic cooperation projects.
The thaw in relations between the two countries was given a boost by progress at six-party talks held in October involving South and North Korea, China, the U.S., Russia and Japan, when North Korea agreed to disable its Yongbyon reactor by the end of the year.
The two Koreas have been technically at war since the 1950-53 Korean War. However, any formal peace treaty would require the participation of the United States and China, which were also involved in the conflict. The U.S. has so far been reluctant to discuss a peace treaty until the North fully discontinues its nuclear program.
