South Korea and the United States could announce a defense cost-sharing agreement as early as Wednesday, a source said, as thousands of Koreans workers in the US Forces Korea went on unpaid leave in the absence of a deal to fund their wages.

"In the broad scheme of things, the two sides have clearly reached the stage of putting the finishing touch on the negotiations, though various possibilities remain still open," the source told Yonhap News Agency on condition of anonymity.

"The possibility (of the announcement) cannot be ruled out," the source added, refusing to delve into other details, such as the duration of the new cost-sharing deal, called the Special Measures Agreement (SMA).

A local news report said the two sides reached an agreement on a five-year SMA that would govern how much Seoul should pay during the 2020-2024 period for the upkeep of the 28,500-strong USFK. Last year's SMA, which called for Seoul to pay about $870 million, expired in December.

A day before the furloughs of 4,500-5,000 Korean employees in the USFK, South Korea's chief negotiator Jeong Eun-bo said that Seoul and Washington have "considerably" narrowed their differences, and voiced expectation for the conclusion of the SMA talks "in the near future."

The furloughs have triggered concerns they could disrupt day-to-day USFK operations and undercut the military's readiness against the backdrop of military tensions caused by Pyongyang's repeated rocket tests.

Since September last year, the two sides have held seven rounds of talks to negotiate the SMA. But they have struggled to meet halfway, particularly about the total amount of Seoul's payments for stationing the USFK. (Yonhap)