The cabinet says it will introduce sanctions as of Thursday on North Korea over its nuclear weapons test earlier this month.
With the decision, Switzerland follows the lead of the United Nations Security Council, which approved financial and arms sanctions on October 14.
The economics ministry said on Wednesday the ban included the export and import of large weapons, even though Swiss law already forbids such trade with North Korea.
The export and import of goods and technology, which could be used for the production of weapons of mass destruction or in North Korea's ballistic missile programme, are also banned, as are associated financial services.
Switzerland has, however, authorised the export to North Korea of so-called "dual use" goods, worth a total of SFr500,000 ($395,000) since 1998, according to the ministry.
In line with the Security Council, exports of luxury goods are also forbidden.
The Security Council resolution demands that North Korea eliminate all its nuclear weapons and return to six-party talks aimed at ending its programme.
It calls on all countries to inspect cargo leaving and arriving in North Korea to prevent any illegal trafficking in weapons of mass destruction or ballistic missiles.
The Swiss UN ambassador, Peter Maurer, has warned that Pyongyang's claimed nuclear test had not only threatened the security of the region but could start a spiral of events that could get out of control.
Maurer called on North Korea to rejoin the Nuclear Non-Proliferation Treaty, which it left in 2003.
The Swiss authorities have yet to decide whether to break off ongoing political dialogue between Bern and Pyongyang that has seen four rounds of talks since 2003 on international and bilateral issues. The last meeting took place in the Swiss capital, Bern, in April.
swissinfo with agencies
Swiss military personnel have been stationed on the border between the two Koreas since 1953, as part of the Neutral Nations Supervisory Commission in Korea (NNSC).
Switzerland has no diplomatic representation in North Korea.
The Swiss Agency for Development and Cooperation (SDC) has an office in Pyongyang. Its aid budget for 2006 is SFr5.3 million ($4.1 million).
In May 2003, Swiss Foreign Minister Micheline Calmy-Rey became the first foreign government official to cross the demarcation line between North and South Korea.
In 2005 Switzerland exported goods worth SFr4.5 million to North Korea and imported goods worth SFr1.7 million.end of infobox