However, he also noted one of the tunnels at the Punggye-ri complex, where nuclear tests are likely to happen, is ready for another detonation at any time now, Reuters reported. President Trump says the move "supports our maximum pressure campaign to isolate this murderous regime".
In order to be considered a state sponsor of terrorism, a country must "repeatedly provide support for acts of worldwide terrorism". By then, he said, sanctions would be at their highest level ever.
The US administration said it wanted to cut off the income Pyongyang makes from exporting labour.
The designation comes a week after President Trump returned from a 12-day, five nation trip to Asia, during which he called on the Chinese President to put more pressure on North Korea - but also spoke of his hope that he may one day be able to "make a deal" with the country.
Yi mentioned that there were no signs of any nuclear tests yet in the region.
Japan said it "welcomes and supports" Mr Trump's announcement.
North Korea is pursuing nuclear weapons and missile programmes in defiance of UN Security Council sanctions and has made no secret of its plans to develop a missile capable of hitting the U.S. mainland.
Some analysts warned of a possible backlash.
North Korea was removed from the list by President George W. Bush in 2008. They have been quite open about their plans to develop missiles that can possibly reach the US.
"We know that there are current shortages of fuel based upon what we can gather anecdotally and also from certain intelligence sources", Mr Tillerson said.
"A few years ago, after North Korea's cyberhack of Sony Pictures, it threatened a 9/11-style attack against USA movie theaters", Ruggiero said. "So I think it is having an effect. Is this the reason we haven't had a provocative act in 60 days?"
Tillerson acknowledged that the designation will bring few new sanctions beyond those already imposed, noting during the White House briefing on Monday that "we already have many of these actions in place".
The announcement comes after months of tension between the rogue nation and the USA, with President Trump having regularly traded personal barbs and insults with North Korean leader Kim Jong Un.
USA officials see the designation - which was removed by then-president George W. Bush in 2008 - as a way of ratcheting up pressure on other states and foreign banks that may be failing to fully enforce the sanctions.