SEOUL (Reuters) - China is investigating executives of a North Korean bank believed to finance the illicit procurement of arms and materials related to the isolated country's banned nuclear program, South Korea's JoongAng Daily reported on Monday.

China and the United States have agreed to step up cooperation in the U.N. Security Council and in law enforcement channels after North Korea's fifth nuclear test on Sept. 9, the White House said last week.

While China is North Korea's sole major ally, it disapproves of its nuclear and missile programs.

The Chinese-U.S. cooperation includes targeting the finances of Liaoning Hongxiang Industrial, a Chinese conglomerate headed by a Communist Party cadre, that the Obama administration thinks has had a role in helping North Korea's nuclear program, the Wall Street Journal reported at the time.

The JoongAng Daily said Chinese authorities were investigating a top official of the Kwangson Banking Corporation at its branch in the Chinese border city of Dandong.

The U.S. Treasury designated the bank in 2009 under an order that targets entities supporting North Korea's arms trafficking because of its suspected involvement in procuring "dual-use" technology with both civilian and military application.

"The head of the branch, Ri Il Ho, temporarily returned to North Korea, so the deputy executive is being investigated," a source told the JoongAng Daily.

The paper did not identify its source, who it said was "well-informed on North Korea affairs".

In March, after the latest round of U.N. sanctions, the United Nations extended an asset freeze to all funds held abroad by the bank.

The bank branch in Dandong then moved to an office in a building also used by Hongxiang and continued to operate, though without a sign, the JoongAng Daily said.

Asked about the report of the Kwangson probe, Chinese Foreign Ministry spokesman Geng Shuang said he did "not understand" the situation.

But China has fully followed United Nations resolutions on North Korea, which put wide-ranging sanctions on the country, and fulfils its international obligations when it comes to non-proliferation export controls, Geng added.

A report by the Asan Institute for Policy Studies in Seoul and the C4ADS think-tank in Washington last week identified more than $500 million in trade from January 2011 to September 2015 between the North and the Liaoning Hongxiang Group, which states on its website that it trades heavily with the North.

More than 20 customs and city officials in Dandong are being investigated over favors to Ma Xiaohong, Hongxiang's founder and top executive, the JoongAng reported, citing a source "knowledgeable about relations between Beijing and Pyongyang".

In recent weeks, Chinese authorities have frozen certain assets related to Ma and some of her relatives and associates, according to government and corporate filings cited by the Wall Street Journal.

Other unidentified "North Korean employees" living in China were also under investigation, the JoongAng said.

(Reporting by James Pearson; Additional reporting by Ben Blanchard in Beijing; Editing by Robert Birsel and Clarence Fernandez)