(Adds dropped word "a" in first paragraph)
By Daum Kim
SEOUL, Feb 6 (Reuters) - New York under missile attack is a remote dream for impoverished North Korea, yet that is precisely what the latest propaganda video from the isolated state shows as it readies a third nuclear test.
The video, posted on the semi-official Uriminzokkiri website (http://www.uriminzokkiri.com/) and fast becoming a viral Internet hit, shows a U.S. city in flames in scenes reminiscent of 9/11 -- part of a dream sequence in which a photographer circles the earth in a fictionalised North Korean space shuttle.
The rocket depicted in the crude animation, whose backing track is an instrumental version "We Are the World", is labelled the Unha-9 and the satellite shown is the Kwangmyongsong-21, as the young man dreams of photographing the earth from space.
"Black smoke is seen somewhere in America," the Korean text of the video says. "It seems that the nest of wickedness is ablaze with the fire it started."
The video was removed from YouTube due to a copyright claim by Activision Games Inc, from whose "Call of Duty" title the images of the burning city appeared to have been taken, but was still accessible elsewhere on the Web.
So far, North Korea has launched the Unha-3 rocket and is also on the third version of its satellite, which finally made it into space in December last year at the third attempt, triggering the new sanctions from the United Nations.
The North is banned by the United Nations from developing missile and nuclear technology but says that it has the sovereign right to a peaceful space programme.
A North Korean space shuttle is beyond the wildest dreams of a country whose economy is smaller than it was 20 years ago and where around a third of children are malnourished.
Despite its bluster and threats to the United States, which the North labels a "hostile" state, Pyongyang is nowhere near being able to deliver a warhead of any kind capable of hitting an American city, although its Unha-3 rocket does have a theoretical range of 10,000 km (6,200 miles) which could reach the U.S. mainland.
North Korea has trailed plans to carry out a third nuclear test, which experts believe is imminent. It could use highly enriched uranium for the first time in a bid to conserve its limited stocks of plutonium used in tests in 2006 and 2009.
Washington has warned that a third test would trigger more sanctions against Pyongyang, but it took a conservative line on the latest agit-prop video from North Korea.
"I've seen it," State Department spokeswoman Victoria Nuland told a press conference in Washington, referring to the video that was released at the weekend. "I'm clearly not going to dignify it by speaking about it here."
North Korea remains technically at war with both South Korea and the United States after the 1950-53 Korean War ended in an armistice rather than a peace treaty.
Its hyper-active propaganda machine has threatened on many occasions to turn the South Korean capital Seoul into a "Sea of fire" and it has also labelled South Korean President Lee Myung-bak a "rat bastard" and staged mock killings of him.
The latest video, which by Wednesday had been viewed more than 100,000 times on the Live Leak website, ends denouncing the "schemes of imperialists to isolate and oppress us". (http://www.liveleak.com/view?i=203_1360053143)
"They will not be able to stop our journey toward the final victory," is says. (Addtional reporting by Paul Eckert in WASHINGTON; Writing by David Chance; Editing by Alex Richardson)