Kim Yo-jong's comments mark the first time a senior North Korean official has commented directly on what South Korean President Yoon Suk-yeol has called an "audacious" plan - first proposed in May and which he talked about again on Wednesday at a news conference to mark his first 100 days in office.
"It would have been more favourable for his image to shut his mouth, rather than talking nonsense as he had nothing better to say," Kim Yo-jong said in a statement released by state news agency KCNA.
In it, she called Yoon "really simple and still childish" to think he could trade economic co-operation for the North's honour and nuclear weapons.
"No one barters its destiny for corn cake," she said.
South Korea's Unification Minister, who handles relations with the North, called Kim's comments "very disrespectful and indecent".
While Yoon has said he is willing to provide phased economic aid to North Korea if it ends nuclear weapons development and begins denuclearisation, he has also pushed to increase South Korea's military deterrence against the North.
South Korea has resumed long-suspended joint drills with the United States, including major field exercises due to begin next week.
On Wednesday a US State Department spokesman said Washington supports Yoon's policies, but Kim said the joint drills show the allies' talk of diplomacy is insincere.
"We make it clear that we will not sit face-to-face with him," she said of Yoon.
Kim Yo-jong has become a vocal critic of South Korea in recent years, seen by some experts as playing "bad cop" to her brother's more subdued statements.
Friday's statement is her harshest personal attack on Yoon to date, but this month she also released a profanity-laced tirade that blamed the South for a COVID-19 outbreak in the North and threatened "deadly retaliation" if there were further occurrences.
Experts say the South's latest economic plan is similar to proposals by previous presidents, including those during the summits between the then-US president Donald Trump and Kim Jong-un.
"Yoon's initiative adds to a long list of failed offers involving South Korean promises to provide economic benefits to North Korea," Scott Snyder, a senior fellow at the US Council on Foreign Relations think tank, said in a blog post on Thursday.
North Korea - having last week declared 'victory' over COVID-19 - fired two cruise missiles into the sea on Wednesday, the first such test in two months.
