South Korea seeks joint fund with Japan firms to compensate war labourers

South Korea said Wednesday it was open to talks with Japan on the issue of wartime forced labour if local and Japanese firms set up a joint compensation fund for victims of the policy.

Relations between the two US allies have been increasingly strained by a series of rulings from South Korean courts ordering Japanese firms that used wartime forced labour to compensate victims.

Japan's government and the firms involved have rejected the rulings, with Tokyo saying the issue was settled when the two countries normalised relations.

Last month, Tokyo proposed the issue be put to arbitration under the terms of an agreement signed by the two countries in 1965, when ties were normalised.

The agreement calls for the two countries to set up an arbitration panel if they cannot resolve a dispute through diplomatic negotiations.

South Korea on Wednesday offered a counter-proposal that would see South Korean and Japanese firms -- including those involved in the court cases -- set up a voluntary fund to compensate the victims.

"If Tokyo accepts our offer, our government is willing to review the Japanese government's request (to discuss the issue)," the ministry said in a statement.

Japan and South Korea are both democracies, market economies and US allies, but their relationship has been strained for decades as a result of Tokyo's brutal 1910-45 colonial rule over the Korean peninsula.

When relations were normalised, Tokyo agreed a reparations package that included grants and cheap loans intended to cover victims of various wartime policies. Japan argues that package should have permanently resolved the issue.