South Korea announced plans Monday to compensate victims of Japan's forced wartime labour, aiming to end a "vicious cycle" in the Asian powers' relations and boost ties to counter the nuclear-armed North.

Japan and the United States immediately welcomed the announcement, but victims groups said it fell far short of their demand for a full apology from Tokyo and direct compensation from the Japanese companies involved.

Seoul and Tokyo have ramped up security cooperation in the face of growing threats from Kim Jong Un's North Korea, which is expanding its nuclear weapons programme in defiance of UN sanctions.

But Seoul-Tokyo ties have long been strained over Tokyo's brutal 1910-45 colonial rule of the Korean peninsula, with the nations unable to reach final agreements on the extent of compensation and apologies.

Around 780,000 Koreans were conscripted into forced labour by Japan during its 35-year occupation, according to data from Seoul.

This does not include the Korean women forced into sexual slavery by Japanese troops.

Seoul's plan is to take money from major South Korean companies that benefited from a 1965 reparations deal with Tokyo and use it to compensate victims and their families, Foreign Minister Park Jin said.

The hope is that Japan will "positively respond to our major decision today with Japanese companies' voluntary contributions and a comprehensive apology," he added.

"I believe that the vicious circle should be broken for the sake of the people at the national interest level," Park added.

Japanese Foreign Minister Yoshimasa Hayashi welcomed the new plan, telling reporters it would help to restore "healthy" ties.

Hayashi reiterated that the government in Tokyo stood by a 1998 declaration that included an apology.

Japanese media have reported that Yoon could soon visit Tokyo, possibly even for a Japan-South Korea baseball game this week.

South Korea also said a few hours after the announcement it would halt a World Trade Organization complaint against Japan, as the two sides planned talks on economic disputes triggered by the issue.

The two sides imposed a raft of tit-for-tat economic measures as relations soured after a 2018 South Korean Supreme Court ruling ordered some Japanese companies to pay compensation, infuriating Tokyo.

- 'What Japan does next' -

Washington hailed what it called a "groundbreaking new chapter of cooperation and partnership between two of the United States' closest allies," according to a statement from the White House.

But analysts were more cautious.

"The significance of today's announcement will be measured in large part by what Japan does next," Benjamin A. Engel, research professor at the Institute of International Affairs at Seoul National University, told AFP.

At a minimum, some kind of apology from Tokyo and donations from two Japanese companies which have been ruled liable by Korea's Supreme Court would help ensure the South Korean public accept the deal, he said.

"Without these steps by the Japanese side, the announcement by the Korean government will not amount to much," he said.

The move to resolve the forced labour issue follows years of disputes over World War II sex slaves, which had soured Japan-South Korea ties.

Seoul and Tokyo reached a deal in 2015 aimed at "finally and irreversibly" resolving that issue, with a Japanese apology and the formation of a one billion yen fund for survivors.

But South Korea later effectively nullified that deal, citing a lack of victims' consent, which led to a bitter diplomatic dispute that spread to affect trade and security ties.

- North Korean threat -

South Korean foreign minister Park said the plan announced Monday had the support of many victims' families, adding Seoul would "see them one by one and consult with them and seek their understanding sincerely".

But the plan had already drawn strong protest from victims groups.

"It is as if the bonds of the victims of forced labour are being dissolved through South Korean companies' money," Lim Jae-sung, a lawyer for several victims, said in a Facebook post on Sunday.

"It is a complete victory for Japan, which can't spare even one yen on the issue of forced labour."

After the plan was announced, victim Yang Geum-deok also immediately denounced it.

"I won't take money that seems like the result of begging," Yang said, according to Yonhap.

"You must apologise first and then work through everything else."