The North's official KCNA news agency said the talks in the border truce village of Panmunjom yesterday had turned sour following what it suggested was the intervention of the presidential Blue House in Seoul.
After a long delay, the South began the afternoon session with a series of "absurd" demands that overturned everything agreed in the morning, KCNA said.
As well as raising concerns over the number of North Korean athletes and cheerleaders, it sought to place restrictions on the size of the North Korean flag to be displayed at the Asiad, the agency said.
Seoul reportedly wants to break from its tradition of financially supporting visiting sporting delegations from the North, to move into line with international sporting standards.
According to KCNA, the North Korean side saw the South's attitude as a "deliberate act" to scupper the talks.
"It clarified that if the South side insists on such a defiant attitude, it will fundamentally re-examine its participation in the Games," it said.
The Asian Games are to be held from September 19 to October 4 in the South Korean port city of Incheon.
The Panmunjom meeting was ostensibly aimed at hashing out the practicalities of how the North's delegation will travel to Incheon and where it will be accommodated.
It was the first meeting between the two sides at Panmunjom for five months, and comes at a time of simmering tensions following an unusually extended series of North Korean rocket and missile tests. The talks ended with no agreement for another round.
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