Japanese Foreign Minister Nobutaka Machimura said on Thursday Japan would end development loans to China but would hold talks with Beijing to ensure the cessation of the aid was not disruptive, Kyodo news agency said.

Japan has already reduced low interest loans to booming China for three straight years, adding tension to a relationship long soured by Japan's brutal occupation of parts of China from 1931 to 1945.

"We will hold talks with the Chinese side toward a soft landing for an end to yen loans while considering it in the overall policy toward China," Kyodo news agency quoted Machimura as saying.

Machimura did not give a date for the end of loans to China.

He was speaking during a meeting on overseas aid attended by various cabinet ministers, Kyodo said. He said in December Japan may review its plans for economic aid to China this year.

The issue is highly sensitive as some analysts say China sees Japan's development aid as a form of war reparations even though Japan says all wartime compensation issues concerning China were settled by a 1972 joint statement that established ties. The Nihon Keizai Shimbun business daily said last week Japan may stop fresh development loans to China by 2008 when Beijing hosts the Olympics. Government officials later said no decision had been made to stop fresh yen loans.

Some Japanese politicians argue that China's rapid economic and military expansion disqualify it from receiving aid from Japan, which is struggling with huge budget deficits.

Japan scaled back loans to China by 20 percent in 2003/04 to about $940 million, leaving India as the top recipient of Japanese foreign aid loans.

Despite a flourishing economic relationship, ties between Tokyo and Beijing have been chilled by a range of disputes, including Prime Minister Junichiro Koizumi's annual trips to Yasukuni shrine, which honours Japan's war dead.

Source: China Daily/agencies