(Updates with second round of talks called for Friday)
By Jack Kim
SEOUL, Feb 13 (Reuters) - South Korea has rejected a demand by its northern neighbour to postpone this month's military drills with the United States to avoid overlap with planned reunions of families separated during the Korean War, an official said on Thursday.
The demand, made at a rare high-level meeting between the North and South on Wednesday, raised the possibility that the reunion event might be scuttled and deal a setback to weeks of confidence-building efforts by Seoul.
"North Korea persistently demanded the postponement of the joint exercise for two days where it overlaps the reunions," South Korea's Unification Minister Ryoo Kihl-jae told parliament. "As far as we're concerned, it's impossible."
Ryoo is the South's top policymaker on the North.
The demand appears to be a step back by the North, which had urged cancellation of the drills and is the latest example of conflicting signals from Pyongyang, which included an abrupt cancellation of an invitation for a U.S. envoy to visit and discuss the plight of a U.S. missionary held there.
The two sides will meet again on Friday for the second round of talks at the Panmunjom truce village, the Unification Ministry said, adding that the meeting was again proposed by the North.
The North says the military drills are a rehearsal for war by the United States, despite consistent denials by Seoul and Washington, which say they are routine exercises. About 28,500 U.S. troops are permanently based in South Korea.
South Korea's defence ministry said the drills would be held as scheduled later this month because troops and equipment have already started mobilizing and because legitimate defence activities should not be linked to a humanitarian event.
The two Koreas are scheduled to hold reunions of family members separated since the Korean War from Feb. 20 to 25 at the Mount Kumgang resort just inside the North. The drills start on Feb. 24 and continue to mid-April.
Several lawmakers expressed concern that the North would once again scrap the reunions, as it did in September. An expert on the North said it was too optimistic to expect the North was genuinely seeking reconciliation with the South.
"North Korea in the first place has no willingness to hold reunions and it looks likely to fall apart," said Lee Ji-sue of Myongji University in Seoul. "Even if it goes ahead, the reunions will end up being an one-off event."
The North has previously threatened to cancel the reunions, citing a sortie last week by a nuclear-capable U.S. B-52 bomber near the Korean peninsula. The United States has about 28,500 troops stationed in South Korea.
North Korea has cancelled an invitation for U.S. human rights envoy Robert King to visit Pyongyang to discuss the release of U.S. missionary Kenneth Bae, which had been expected to come as early as this week. (Additional reporting by Ju-min Park; Editing by Clarence Fernandez)