"North Korea is covertly preparing for a third nuclear test, which would be another grave provocation," said the report, which cited U.S. commercial satellite photos taken April 1. "North Korea is digging up a new underground tunnel at the Punggye-ri nuclear test site, in addition to its existing two underground tunnels, and it has been confirmed that the excavation works are in the final stages."

Dirt believed to have been brought from other areas is piled at the tunnel entrance, the report said, something experts say is needed to fill up underground tunnels before a nuclear test. The dirt indicates a "high possibility" North Korea will stage a nuclear test, the report said, as plugging tunnels was the final step taken during its two previous nuclear tests.

North Korea announced plans last month to launch an observation satellite using a three-stage rocket during mid-April celebrations of the 100th anniversary of the birth of North Korean founder Kim Il Sung.