North Korea had wanted to use a version of the Korean peninsula flag that includes islands disputed with Japan.
Japan had complained to South Korea about fans waving the flag at a women's ice hockey game last month between the combined North and South Korean team and Sweden.
"We understand the difficulties for the International Paralympic Committee," IOC spokesman Mark Adams said. "This is not an easy process as we know from our own experience.
"We were still negotiating right up until the very last moment. Four hours before we still did not have agreement for a joint march."
South Korea was eager to use the Winter Olympics to help ease tensions spurred by the North's pursuit of nuclear weapons.
The opening ceremony on Feb. 9 was attended by South Korean President Moon Jae-in, North Korean leader Kim Jong Un's younger sister Kim Yo Jong, as well as Kim Yong Nam, the North's nominal head of state.
U.S. Vice President Mike Pence and Japanese Prime Minister Shinzo Abe were also present.
On Thursday, U.S. President Donald Trump said he was prepared to meet North Korea's leader in what would be the first face-to-face encounter between the two countries' leaders and potentially mark a major breakthrough in nuclear tensions with Pyongyang.
North and South Korea will also hold their first summit in more than a decade in late April.
Adams told Reuters that the Winter Olympics, which South Korea had dubbed the 'Peace Games', had helped facilitate progress in calming tensions.
"The joint march and the joint hockey team, and also the opportunity for direct informal discussions that took place during the Games, have paved the way for progress in talks," he said.
"This door remains open ... and this 'open door' is clear from the summit that has been agreed between the two Korean leaders scheduled for April, as well as the opening up of a direct hotline between them for the first time for many years.
"For our part, the IOC will continue the process discussing with our partners in the National Olympic Committee of DPRK (North Korea) how we can continue to work on participation of the country's athletes."
The IOC along with international sports federations supported North Korean athletes financially and in kind to help them participate at the Pyeongchang Winter Olympics.
Reclusive North Korea and the rich, democratic South are technically still at war because their 1950-53 conflict ended in a truce, not a peace treaty.
(Editing by Peter Rutherford)
