More than 30 North Korean hackers were hired by a South Korean crime ring to steal personal data from South Korean gamers.
The hackers, graduates of elite North Korean universities, were hired to work in China and channelled $5m to their country in compensation.
North Korea has been blamed for spreading malicious computer software that paralysed wesites of government agencies and businesses, and for a cyber attack on a South Korean bank this year that brought down its network.
The cyber criminals could have easily broken into computer networks of agencies to steal sensitive information or spread malicious software, police added.
They said 15 people had been arrested in South Korea after they recruited the hackers and set them up in China to steal personal data from a large South Korean online game network.
The information was used by the South Korean ring to create virtual players whose identities were sold to online gamers who used them to improve their winnings, police said.
The hackers were paid as much as 55 per cent of the revenue from the sale of the identities, and their expenses in China were reimbursed by the South Korean ring members, the police said.
The police have no plans to take steps to pursue the North Koreans, an official said.
Online security experts have discovered an unprecedented series of cyber attacks on the networks of 72 organisations globally including the U.N., governments and business over five years.
Security company McAfee said this week it believed one "state actor" was behind the attacks but declined to name it, although several security experts said evidence points to China.
South Korea has been the target of two large waves of cyber attacks on major government websites and business networks.
Officials claim the acts of "cyber terror" originated in the secretive rival North, with which the South remains technically at war.
North Korea has denied the charges and accused Seoul of inventing a conspiracy to fuel confrontation, although a North Korean defector warned recently that Pyongyang was recruiting thousands to its cyber warfare unit.
A South Korean government task force is working on a strategy to address cyber security threats to what is the world's most wired country.
More than 95 per cent of South Korean households have permanent access to the internet, thanks to heavy government investment in networks.