South Korea's Foreign Ministry says it has proposed to Japan that businesses of the two countries establish a fund to compensate Koreans forced into labor under Japanese colonial rule.

This comes amid strained bilateral relations over South Korean court decisions that ordered Japanese companies to pay reparations to the victims of Japan's wartime forced labor. 

Under the proposed plan, Japanese defendant companies should voluntarily provide funding for the compensation along with those South Korean corporations that received money from Japan under the 1965 settlement of Japanese colonial occupation of Korea.

An official of the Foreign Ministry told reporters that if Japan accepts the proposal, Seoul will agree to Tokyo's request to discuss the dispute over the forced labor compensation. 

Seoul had missed the Tuesday deadline for Japan's request for forming an arbitration panel aimed at resolving the dispute.

In October of last year, the South Korean Supreme Court upheld a 2013 lower-court ruling that ordered Japan's Nippon Steel & Sumitomo Metal to pay one-hundred million won, or nearly 89-thousand U.S. dollars, each to four forced labor victims. Similar rulings followed after the October court decision, sparking opposition from Japan. 

It was not immediately clear how Japan took Seoul's counterproposal. 

Kyodo News, however, reported that a senior Japanese foreign ministry official rejected Seoul's "overtures" partly on the grounds that Japan has moved on from seeking bilateral talks on the issue.

Since the South Korean top court ruling, Japan has maintained all compensation issues have already been dealt with under the 1965 deal.  

Korea was colonized by Japan from 1910 until 1945.