Japan's cabinet on Friday approved a plan to remove South Korea from a list of countries that enjoy minimum export controls, a move likely to escalate tensions fuelled by a dispute over compensation for wartime forced labourers.

The decision to drop South Korea from the "white list," a step that has been protested fiercely by Seoul, comes a month after Japan tightened curbs on exports to South Korea of three high-tech materials needed to make memory chips and display panels.

The decision was approved by the cabinet and would take effect from August 28, Industry Minister Hiroshige Seko told a briefing. He said the trade control was not a countermeasure and was done from the standpoint of Japan's national security.

Japan has previously cited what it says is South Korea's insufficient export controls as the main impetus for the move. But Tokyo has also highlighted what it says is an erosion of trust after South Korean court rulings ordered Japanese firms compensate wartime forced labourers.

Japan says that issue of compensation was settled by a 1965 treaty that normalised ties between Tokyo and Seoul.

South Korea would be the first country to be removed from Japan's white list, which currently has 27 countries including Germany, Britain and the United States.

The measure could require South Korean exporters to take extra administrative procedures to obtain export licenses, potentially slowing down exports of a wide range of goods that could be used to produce weapons.

South Korean officials have warned they may reconsider an intelligence sharing accord with Japan if the feud worsens.

The United States has urged its two key Asian allies to consider reaching a "standstill agreement" to buy more time for talks, a senior US administration official told reporters in Washington on Tuesday.

US Secretary of State Mike Pompeo said on Thursday he hoped the two would find a solution by themselves, stressing cooperation on North Korea was "incredibly important".

Seko said Japan had briefed the US administration on its plans to remove South Korea from the list, and added that the move was not intended to hurt bilateral relations with South Korea.