Pyongyang's official Korean Central News Agency said Wednesday that Kim had visited the resort and described its facilities as "shabby" and lacking national character. The report said Kim criticized North Korea's policies pushed under his late father as too dependent on the South.
Kim's comments came during a prolonged freeze in relations with Seoul and are a major setback to liberal South Korean President Moon Jae-in, who met Kim three times last year while expressing ambitions to reboot inter-Korean economic engagement, which looks increasingly less likely amid faltering nuclear negotiations between Washington and Seoul.
South Korean officials held back direct criticism on Kim's remarks, saying they need to take a closer look at the North's intent.
Lee Sang-min, spokesman of Seoul's Unification Ministry, said the South will "actively defend the property rights of our people" and plans to accept any proposed talks by North Korea over the facilities. He didn't offer a specific answer when asked whether the South could do anything to stop the North if it begins to tear down the facilities unilaterally.
Tours to Diamond Mountain were a major symbol of cooperation between the Koreas before the South suspended them in 2008 after a North Korean guard fatally shot a South Korean tourist there.
Seoul can't restart inter-Korean economic activities without defying sanctions against Pyongyang, which have been strengthened since 2016 when the North began speeding up its nuclear development.
Kim instructed officials to entirely remove the "unpleasant-looking facilities" built by the South after discussing the matter with South Korean officials and construct "new modern service facilities our own way that go well with the natural scenery of Mt. Kumkang," the KCNA said.
"(Kim) said that the buildings are just a hotchpotch with no national character at all, and that they were built like makeshift tents in a disaster-stricken area or isolation wards," the agency said.
"He said that due to the mistaken policy of the predecessors who tried to get benefits without any efforts after just offering the tourist area, the mountain was left uncared for more than ten years ... He made a sharp criticism of the very wrong, dependent policy of the predecessors who were going to rely on others when the country was not strong enough."
South Korea's government and companies have built about a dozen tourist facilities in the Diamond Mountain area to accommodate the tours that began in 1998, including hotels, restaurants, spas, a concert hall and a golf course. North Korea said it froze and confiscated all South Korean properties at the resort in 2010 after blaming Seoul for the continued suspension in tours.
In a summit last September in Pyongyang, Kim and Moon vowed to restart South Korean tours to Diamond Mountain and normalize operations at an inter-Korean factory park in the North Korean border town of Kaesong, voicing optimism that U.S.-led sanctions could end and allow such projects.
Kim raised the subject again during his New Year's speech this year, saying that Pyongyang was ready to restart the projects "without any precondition" while making a nationalistic call for stronger cooperation between the Koreas.
However, the projects remain shelved amid deadlocked nuclear negotiations between Washington and Pyongyang that have failed to produce a breakthrough that would justify an easing of sanctions.
The North in recent months suspended virtually all diplomacy and cooperation with the South while demanding that Seoul breaks away from ally Washington and restart inter-Korean economic activities.