The threat attracted a plea from UN secretary-general Ban Ki-moon that the money could be better used on alleviating famine within the country, but North Korea's leader Kim Jong-un was unimpressed, vowing that his country had the right to add to its defences.
Coming on top of the successful testing of a long-range ballistic missile last year, the possibility of a fresh test has further increased concerns in the Pacific region as well as in the US.
Last week the North Korean administration in Pyongyang was forced to withdraw a promotional video from social networking sites, which showed a city coming under attack by North Korean missiles. As the city looked remarkably similar to New York and the buildings were covered by the Stars and Stripes flag, the inference was obvious.
Even if there was an element of licence – as the North Koreans claimed – no one could have missed the message in the soundtrack: "Black smoke was billowing somewhere in America. Maybe the group of Satan, who has been habitually conducting an invasion war, are burning in the fire they set themselves."
As ever, when the world is dealing with North Korea, there has to be a degree of make-believe in Kim's actions. While the explosion of a nuclear device is a worry, so far the country's armed forces are without a credible delivery system.
According to Western defence analysts, the Unha-3 intern-continental ballistic missile (ICBM) used in the satellite launch is incapable of being used for delivering a nuclear warhead. According to analyst Markus Schiller of Schmucker Technologie in Germany, for North Korea to "become a player in the ICBM game, they would have to develop a different kind of missile, with higher performance. If they do that seriously, we would have to see flight tests every other month, over several years."
Despite that reassurance, the US State Department is taking no chances. If North Korea pushes ahead with testing, it will recommend to Obama he should re-designate the country as a state sponsor of terrorism – a label it lost in 2008 after Pyongyang agreed to take steps to verify its nuclear programme.
Any new legislation would lead to the re-introduction of penalties such as a ban on food aid and arms exports. Diplomats believe it could also prevent technology falling into the hands of Iran, which is a long-term customer of the North Korean nuclear industry.