Nearly one-third of those under the age of five show signs of stunting, particularly in rural areas where food is scarce. Chronic diarrhoea, due to a lack of clean water, has become the leading cause of death among children, the agency said.
Hospitals are spotless but bare, few have running water or power, and drugs and medicine are in short supply, the agency said in a detailed update on the humanitarian situation in North Korea.
"I've seen babies... who should have been sitting up who were not sitting up, and can hardly hold a baby bottle," said Jerome Sauvage, the UN's Pyongyang-based resident co-ordinator for North Korea. He presented his report in Beijing.
The United Nations called for $198 million (£127m) in donations for 2012 – mostly to help feed the hungry.
The appeal comes at a delicate time for North Korea, which has sought to project an image of stability and unity during the transition to power of the new, young leader, Kim Jong Un.
North Korea does not produce enough food to feed its 24 million people, and relies on limited purchases of food as well as outside donations to make up the shortfall.
About 16 million North Koreans – two-thirds of the country – depend on twice-a-month Government rations.
Mr Sauvage noted that North Korea, proud of its free healthcare system, runs spotlessly clean hospitals but with limited facilities.
"You go and visit a hospital in winter and it will not be heated. Never," he said. "There will most likely be no water. There will likely be no medicine other than the medicine that agencies are delivering."