Seoul's move to shut down operations at the joint-run Kaesong complex is the latest in an escalating standoff over North Korea's recent rocket launch that the UN has condemned as a banned test of missile technology.
Pyongyang says the decision to deport the 280 workers at Kaesong was a response to Seoul's earlier decision to suspend operations as punishment for the launch.
North Korea tested what it said was a hydrogen bomb on January 6 and on Sunday launched a rocket, putting a satellite into orbit.
The North also said it was closing an inter-Korean highway linking to Kaesong and shutting down two cross-border communication hotlines.
Al Jazeera's Harry Fawcett, reporting from Seoul, said some analysts have suggested it could be the lowest point of relations between the two neighbouring countries in more than 20 years.
"South Koreans have confirmed the cutting of the military emergency hotline. They also promised to cut off the civilian hotline that the two countries communicate with," he said.
"The South Korean defence ministry says it is possible that North Korea will turn it into a full-fledged military base and that is something they are keeping an eye on."
"What we have is the North Koreans saying that it is a declaration of war by South Korea, that they (Seoul) have cut off the last remaining lifeline of North-South relations."
On Thursday night, the 280 South Korean workers who had been at the park crossed the border into South Korea, several hours after a deadline set by the North passed.
But they weren't allowed to bring back any finished products and equipment from their factories because the North announced it would freeze all South Korean assets there.
The current standoff flared after North Korea carried out a nuclear test last month, followed by the long-range rocket launch on Sunday that came after Seoul had warned of serious consequences.
Seoul said its decision on Kaesong was an effort to stop North Korea from using hard currency earned from the park to pay for its nuclear and missile programs.
The North's Committee for the Peaceful Reunification of Korea said in a statement later on Thursday that the South's shutdown of Kaesong was a "dangerous declaration of war" and a "declaration of an end to the last lifeline of the North-South relations".
North Korea has previously cut off cross-border communication channels in times of tension with South Korea, but they were later restored after animosities eased.
Combining South Korean initiative, capital and technology with the North's cheap labour, the industrial park has been seen as a test case for reunification between the Koreas. Last year, 124 South Korean companies hired 54,000 North Korean workers to produce socks, wristwatches and other goods worth about $500 million.
The UN Security Council on Sunday strongly condemned North Korea's rocket launch and said it would speed up work on a sanctions resolution "in response to these dangerous and serious violations".
The statement was adopted by China, Pyongyang's ally, and the 14 other council members during an emergency meeting called after Pyongyang said it had put a satellite into orbit with a rocket launch.