Malaysia was outraged by the murder of the North Korean leader's estranged half brother at Kuala Lumpur International Airport on February 13 by assassins using VX nerve agent, a chemical listed by the United Nations as a weapon of mass destruction.
Police have identified eight North Koreans wanted in connection with the murder, including a senior North Korean diplomat and a state airline employee—two of the three believed to be hiding in the embassy. The only people charged so far are a Vietnamese woman and an Indonesian woman.
As the row escalated on Tuesday, North Korea's foreign ministry issued a temporary ban on Malaysians leaving in order to ensure the safety of its own diplomats and citizens in Malaysia.
All Malaysian citizens in the DPRK will be temporarily prohibited from leaving the country until the incident that happened in Malaysia is properly solved, the state-run Korea Central News Agency said, quoting a foreign ministry official.
In this period the diplomats and citizens of Malaysia may work and live normally under the same conditions and circumstances as before.
Malaysia reacted swiftly, condemning Pyongyang's action as hostage-taking and responded by barring all North Koreans from leaving the country.
"This abhorrent act, effectively holding our citizens hostage, is in total disregard of all international law and diplomatic norms," Malaysian Prime Minister Najib Razak said in a statement, adding that he has summoned an emergency meeting of the National Security Council.
Najib said he has also instructed the police "to prevent all North Korean citizens in Malaysia from leaving the country until we are assured of the safety and security of all Malaysians in North Korea".
Before the murder, North Korea could count Malaysia as one of its few friends outside of China. But Malaysia has since stopped visa-free travel and on Monday it expelled North Korea's ambassador for questioning the impartiality of the murder investigation.
There are 11 Malaysians in North Korea, according to a Malaysian foreign ministry official, including three embassy staff, six family members, and two others.
Hundreds of North Koreans are believed to be in Malaysia, most of them students and workers. The focus, however, was on its embassy staff.
"We are trying to physically identify all the embassy staff who are here," deputy home minister Nur Jazlan Mohamed told reporters outside the North Korean embassy.
He said staff would not be allowed to leave the embassy "until we are satisfied of their numbers and where they are".
By early afternoon, Malaysian police had removed the tape and police car blocking the North Korean embassy driveway in a sign of easing tensions.
Speaking at a news conference in Kuala Lumpur on Tuesday, Malaysia's police chief said three of the North Koreans sought in connection with the murder had holed up at the embassy in the Malaysian capital.
"How much longer do they want to hide in the embassy...it is a matter of time before they come out," police chief Khalid Abu Bakar said.
"We will not raid the embassy building, we will wait for them to come out. We have got all the time," Khalid said.
Aside from the suspects said to be hiding in the embassy, police have said four other North Koreans left Malaysia in the hours after the murder.
The only North Korean suspect to be apprehended was deported on Friday, released due to insufficient evidence.
US officials and South Korean intelligence suspect North Korean agents were behind the assassination of Kim Jong Nam, who had been living in Macau under China's protection. He had spoken out publicly against his family's dynastic rule of North Korea.
North Korea has refused to accept that the dead man is leader Kim Jong Un's half brother, and has suggested the victim died of a heart attack.
No next of kin have come forward to claim the body, but the Malaysian police chief said he was confident of obtaining DNA samples to formally identify the murdered man.