* North Korea space agency will now be blacklisted
* Council warns North against new nuclear test
* China says sanctions alone don't work, more diplomacy needed
* Pyongyang continues work on nuclear test site, test seen some way off (Adds U.S. envoy comments, paragraphs 7-8, Russian comment, paragraph 10)
By Louis Charbonneau
UNITED NATIONS, Jan 23 (Reuters) - The U.N. Security Council unanimously condemned North Korea's December rocket launch and expanded existing U.N. sanctions, and Pyongyang reacted with a vow to boost the North's military and nuclear capabilities.
While the resolution approved by the 15-nation council on Tuesday does not impose new sanctions on Pyongyang, diplomats said Beijing's support for it was a significant diplomatic blow to Pyongyang.
The resolution said the council "deplores the violations" by North Korea of its previous resolutions, which banned Pyongyang from conducting further ballistic missile and nuclear tests and from importing materials and technology for those programs.
It also said the council "expresses its determination to take significant action in the event of a further DPRK (North Korean) launch or nuclear test".
North Korea reacted quickly, saying it would hold no more talks on the de-nuclearization of the Korean peninsula and would boost its military and nuclear capabilities.
"We will take measures to boost and strengthen our defensive military power including nuclear deterrence," its Foreign Ministry said in a statement carried by state news agency KCNA.
The United States' special envoy on North Korea, arriving in Seoul on Wednesday to meet his South Korean counterparts, urged Pyongyang to back down from further provocative actions but left the door open for dialogue.
"If they can... begin to take concrete steps to indicate their interests in returning to diplomacy, they may find willing partners in that process," Glyn Davies told reporters.
Six-party talks aimed at halting North Korea's nuclear program have involved North Korea, the United States, China, Japan, Russia and South Korea. They have been held intermittently since 2003 but have stalled since 2008.
Russia's foreign minister said on Wednesday that North Korea should pay heed to the international community and adhere to limits on its missile and nuclear programmes.
South Korea says the North is technically ready for a third nuclear test, and satellite images show it is actively working on its nuclear site. However, political analysts said they viewed a test as unlikely in the near-term.
"North Korea will likely take a sequenced strategy where the first stage response would be more militarily aggressive actions like another missile launch," said Yang Moo-jin of the University of North Korean Studies in Seoul.
There are concerns that North Korea could stage a test using highly enriched uranium for the first time, which would give it a second path to a nuclear bomb and enable it to preserve its stocks of plutonium, which are believed to be sufficient for about 12 nuclear devices.
The U.N. resolution added six North Korean entities, including Pyongyang's space agency, the Korean Committee for Space Technology, and the man heading it, Paek Chang-ho, to an existing U.N. blacklist.
The firms and individuals will all face an international asset freeze, while Paek and the others blacklisted by Tuesday's resolution -- the manager of the rocket launch center and two North Korean banking officials -- will face a global travel ban.
In addition to the space agency, the council blacklisted the Bank of East Land, Korea Kumryong Trading Corp., Tosong Technology Trading Corp., Korea Ryonha Machinery Joint Venture Corp., and Leader (Hong Kong) International.
Leader, based in Hong Kong, is an agent for KOMID, a North Korean mining and trading company that was sanctioned in 2009 and is the North's main arms dealer, the resolution said.
U.S. Ambassador to the United Nations Susan Rice welcomed the resolution, describing it as introducing "new sanctions" against North Korea. "This resolution demonstrates to North Korea that there are unanimous and significant consequences for its flagrant violation of its obligations under previous resolutions," she said.
Other diplomats, however, said on condition of anonymity that describing the measures in Tuesday's resolution were new sanctions would be an exaggeration.
China, the North's only major diplomatic ally, said on Monday the Security Council needed to pass a cautious resolution on North Korea, adding that this was the best way to ensure regional tensions did not escalate further.
Chinese Ambassador Li Baodong said certain elements in the resolution's original draft, which in China's view would "jeopardize" normal trade between North Korea and other countries, had been removed, the official Xinhua news agency reported.
"Sanctions and resolutions alone do not work," Xinhua quoted him as saying. "Resolutions must be completed and supplemented by diplomatic efforts."
Several diplomats said Beijing's decision to back the resolution sent a strong message to Pyongyang.
"It might not be much, but the Chinese move is significant," a council diplomat told Reuters. "The prospect of a (new) nuclear test might have been a game changer (for China)."
The United States had wanted to punish North Korea for the rocket launch with a Security Council resolution that imposed entirely new sanctions against Pyongyang, but Beijing rejected that option. China agreed to U.N. sanctions against Pyongyang after North Korea's 2006 and 2009 nuclear tests.
December's successful long-range rocket launch, the first to put a satellite in orbit, was a coup for North Korea's young leader, Kim Jong-un.
North and South Korea are still technically at war because their 1950-53 conflict ended in a truce, not a treaty. (Additional reporting by Jumin Park, David Chance and Jack Kim in SEOUL, and Ben Blanchard in BEIJING; Editing by Raju Gopalakrishnan)