The launch of the Hatf III, which has a range of up to 290 kilometres (200 miles) and can also carry conventional warheads, came at the end of a field training exercise, a military statement said.

Two weeks ago Pakistan test-fired an intermediate range ballistic missile, seen as a response to arch-rival India's launch of its new long-range Agni V, capable of hitting targets anywhere in China.

India and Pakistan -- which have fought three wars since independence from Britain in 1947 -- have routinely carried out missile tests since both demonstrated nuclear weapons capability in 1998.

Defence analysts say India's strategic priorities are moving away from Pakistan to focus more on China, while Pakistan is still worried about its old foe.

The trio were testing the aircraft for South Korea's military in the western port city of Incheon, police said.

"A 50-year-old foreign engineer from an Austrian company died on the spot when the S-100 drone crashed while they were controlling it remotely from inside the vehicle," a police spokeswoman at Incheon told AFP.

The crash triggered a fire and completely destroyed the 2.5-tonne vehicle, she said.

The 150-kilogram (330-pound) drone and the vehicle were together worth about five billion won ($4.38 million).

"I saw the vehicle, which looked like a large van and was parked in an empty lot, engulfed in flames after the plane circled over our building," an official in a nearby building told AFP.

Two South Koreans were injured but six other people in and around the control vehicle escaped unhurt, the police spokeswoman said, adding the cause was not yet known and government and military officials were investigating.

The nationality of the victim was unclear.

South Korea has used drones to spy on North Korea across the heavily-fortified border. Military authorities confirmed that the S-100 is an unmanned aerial vehicle used for surveillance but declined to disclose details.