GENEVA - South Korea has launched a dispute at the World Trade Organization against the United States over U.S. measures to raise prices on imports of steel, a South Korean embassy official said on Thursday.

The move by Seoul is the latest challenge to a controversial method, known as zeroing, used by the United States to calculate duties on imports that it believes are being dumped or sold below their cost in the exporting country.

It also adds tension to the two nations' relationship after President Barack Obama and his South Korean counterpart Lee Myung-bak agreed last week to work for legislative approval in their respective countries of a free-trade deal signed over two years ago.

The official told Reuters that South Korea had filed a request on Tuesday for consultations with the United States, the first stage in a dispute.

The dispute involves U.S. anti-dumping duties levied on imports of South Korean steel products such as plate and coil made by POSCO, the world's no. 4 steelmaker and other South Korean manufacturers.

WTO dispute panels have consistently ruled that zeroing is illegal, and a group of countries led by Japan is pushing for it to be banned in the WTO's current Doha trade negotiations.

But Washington insists the method, which critics say unfairly inflates anti-dumping duties by ignoring cases where imports actually cost more than at home, is a valid approach.

The two sides now have 60 days to resolve the dispute, otherwise South Korea can request the creation of a WTO panel to rule on it.

(Reporting by Jonathan Lynn; Editing by Stephanie Nebehay/ David Stamp)