A Japanese report says the North Korean regime is showing signs of instability mainly due to the widening gap between the rich and the poor since the economic reform in 2002.

The warning was contained in an annual report by Japan's Public Security Investigation Agency.

In the report on domestic and overseas security conditions in 2004, the Japanese agency said the communist country launched an economic reform in 2002 in a desperate drive to revive its moribund economy by allowing profit-making activities for individuals as well as companies but its implationary risks are becoming serious.

The report said even in the ruling classe such as military and government leaders, the rift between those who have gathered wealth and those who haven't is deepening, while public discontent against the establishment grows. The report said it could cause a major change in the Kim Jong-il regime.

The Japanese report also said there is a possibility of a "feud or confrontation" arising in the course of selecting an heir to leader Kim Jong-Il.