Libya has demanded economic benefits worth one billion dollars from South Korea in return for settling a diplomatic row sparked by spying accusations against Seoul.

It has threatened to restrict South Korean businesses in the North African state unless its demands are met, the JoongAng Daily said.

Tripoli has demanded that Seoul carry out apparently unpaid civil engineering work to the value of one billion dollars, the paper said.

South Korean firms are currently working on civil engineering contracts worth more than nine billion dollars in Libya, according to the International Contractors Association of Korea.

Thursday's Seoul Sinmun newspaper reported that Libya wants South Korea to build a 1,000-kilometre (625-mile) highway for free as a "fine" -- work that would normally cost one billion dollars.

The South's Foreign Minister Yu Myung-Hwan has denied the reports, and said they would hinder diplomatic efforts to end the rift.

"No demand or request has been made," a ministry spokesman said Thursday.

The row became public after Libya expelled a South Korean intelligence official in June for allegedly trying to collect information on ruler Moamer Kadhafi, his family and leading bureaucrats.

It also suspended operations at its de facto embassy in Seoul, forcing South Korean businessmen to go overseas to seek visas for Libya.

Relations have also been strained over the arrest of a South Korean Christian pastor in Libya and by media coverage of the country.

The one-billion-dollar demand was made to a South Korean delegation that held talks in Tripoli last month to try to settle the row, JoongAng Daily said.

In addition, Libya wanted a list of contacts the intelligence official had made in the country, the paper said.

The English-language Tripoli Post said on its website this week that South Korea was under pressure to make a written apology for espionage operations, along with other unspecified demands.

Libya has already started surveying South Korean interests in the services and construction sectors for possible further measures, it said.

The Tripoli Post said investigators were also probing whether the espionage operation was part of a larger spy network in the region.

Before the diplomatic row, Seoul and Tripoli had built strong economic ties since establishing diplomatic relations in 1980.

South Korean companies have worked on nearly 300 construction projects worth a total of 35 billion dollars in Libya since 1978.