North Korea has almost completed preparations for a third nuclear test, a senior source with close ties to Pyongyang and Beijing said, which will draw further international condemnation following a failed rocket launch if it goes ahead.

The isolated and impoverished state sacrificed the chance of closer ties with the United States when it launched the long-range rocket on April 13 and was censured by the U.N. Security Council, including the North's sole major ally, China.

Critics say the rocket launch was aimed at honing the North's ability to develop an intercontinental ballistic missile capable of hitting the United States, a move that would dramatically increase its military and diplomatic heft.

Now the North appears to be about to carry out a third nuclear test after two in 2006 and 2009.

"Soon. Preparations are almost complete," the source said when asked whether North Korea was planning to conduct a nuclear test.

This is the first time a senior official has confirmed the planned test and the source has correctly predicted events in the past, telling Reuters about the 2006 test days before it happened.

The rocket launch and nuclear test come as Kim Jong-un, the third of his line to rule North Korea, seeks to cement his grip on power.

Kim took office in December and has lauded the country's military might, reaffirming his father's ‘military first’ policies that have stunted economic development and appearing to dash slim hopes of an opening to the outside world.

Washington, Seoul and Tokyo, which have most to fear from any North Korean nuclear threat, are watching events anxiously and many observers say that Pyongyang may have the capacity to conduct a test using highly enriched uranium for the first time.

Defence experts say that by successfully enriching uranium, to make bombs of the type dropped on Hiroshima nearly 70 years ago, the North would be able to significantly build up stocks of weapons-grade nuclear material.

It would also allow it more easily to manufacture a nuclear warhead to mount on a long-range missile.

The source did not specify whether the test would be a third test using plutonium, of which it has limited stocks, or whether Pyongyang would use uranium.

South Korean defence sources have been quoted in domestic media as saying a launch could come within two weeks and one North Korea analyst has suggested that it could come as early as the North's ‘Army Day’ on Wednesday.

Other observers say that any date is pure speculation.

The rocket launch and the planned nuclear test have exposed the limits of China's hold over Pyongyang. Beijing is the North's sole major ally and props up the state with investment and fuel.

"China is like a chameleon toward North Korea," said Kim Young-soo, professor of political science at Sogang University in Seoul. "It says it objects to North Korea's provocative acts, but it does not participate in punishing the North."

Reports have suggested that a Chinese company may have supplied a rocket launcher shown off at a military parade to mark this month's centenary of the birth of Kim Il-sung, the state's founder, something that may be in breach of UN sanctions.

China has denied breaching sanctions.

Youngest Kim still in charge despite rocket fiasco

The source said there was debate in North Korea's top leadership over whether to go ahead with the launch in the face of U.S. warnings and the possibility of further U.N. sanctions, but that hawks in the Korean People's Army had won the debate.

The source dismissed speculation that the failed launch had dealt a blow to Kim Jong-un, believed to be in his late 20s, who came to power after his father Kim Jong-il died following a 17-year rule that saw North Korea experience a famine in the 1990s.

"Kim Jong-un was named first secretary of the (ruling) Workers' Party and head of the National Defence Commission," the source said, adding that the titles further consolidated his grip on power.

North Korean media has recently upped its criticism of South Korean President Lee Myung-bak, who cut off aid to Pyongyang when he took power in 2008, calling him a ‘rat’ and a ‘bastard’ and threatening to turn the South Korean capital to ashes.

Pyongyang desperately wants recognition from the United States, the guarantor of the South's security. It claims sovereignty over the entire Korean peninsula, as does South Korea.

"North Korea may consider abandoning (the test) if the United States agrees to a peace treaty," the source said, reiterating a long-standing demand by Pyongyang for recognition by Washington and a treaty to end the 1950-1953 Korean War, which ended in a truce.