Japan will send its ambassador Masatoshi Muto back to South Korea one week after recalling him, as an ongoing territorial dispute heightens between Tokyo and Seoul over sovereignty of a chain of islands in the Sea of Japan ( East Sea), Foreign Minister Koichiro Gemba said on Wednesday.

The move comes just one day after Japan formally proposed to South Korea that the two countries take the territorial feud to the Hague-based International Court of Justice (ICJ) for arbitration.

Gemba told a news conference Wednesday that Ambassador Masatoshi Muto will return to Seoul later in the day to "resolve the dispute from inside South Korea." He added that Japan needed to express its unwavering position on the territorial issue from inside South Korea.

Japan's foreign minister also said that sending Muto back to Seoul was in line with Prime Minister Yoshihiko Noda's policy to resolve the heightening feud by peaceful means and based on international law.

But Tokyo stiffened its rhetoric on the disputed islands, known as Takeshima in Japan and Dokdo in South Korea, with Gemba saying in a parliamentary session earlier Wednesday that South Korea's control of the islets amounted to an illegal occupation.

"We are in a situation where we cannot exercise part of our jurisdiction because of South Korea," Gemba was quoted by local media as saying. "We can say this situation constitutes an illegal occupation."

Both Gemba and Defense Minister Satoshi Morimoto used the expression "illegal occupation" for the first time since the ruling Democratic Party of Japan (DPJ) took power in 2009 -- marking a volitional change in the severity of language used by the Japanese government to describe its stance on the territorial dispute.

In contrast, one week ago Gemba had called for calm responses from both sides and urged South Korea not to "fan the flames of nationalism."

Gemba's remarks Wednesday came after South Korea swiftly rejected Japan's proposal to South Korea to take the island row to the ICJ to seek resolution on the issue.

South Korean Foreign Minister Kim Sung-hwan stated that the proposal from Japan is "not worth consideration," and warned that South Korea will take stern measures against Japan if it " continues to raise any unjustified issue over the islets," according to local media reports.

Gemba also rapped Kim for echoing remarks made by South Korean President Lee Myung-bak, calling for Japan's Emperor Akihito to apologize for the nation's past colonial rule of the Korean Peninsula if he were to visit South Korea.

Lee's comments were made on the back of an unprecedented visit by a South Korean president to the islands just days before the August 15 anniversary of Japan's World War II surrender, which ended its 35-year colonial rule over the Korean Peninsular.

"If Japan's Emperor wishes to visit South Korea, I think it would be good if he apologizes sincerely to those who passed away while fighting for independence," Lee was quoted as saying following his trip to the contested islands.

Due to residual ill-feeling towards Japan from South Korea over its war-time militaristic and colonial rule of the peninsular, Emperor Akihito has not visited South Korea, despite being invited to do so by Lee in person during a visit here in April 2008.

Gemba said that Tokyo had lodged an official complaint with South Korea on Tuesday about Kim's emperor-related remarks, stating that the comments were both "unproductive and of no benefit to South Korea."

Highlighting the keyed up sentiments of both sides, Seoul will return a diplomatic letter sent from Tokyo to protest Lee's visit to the disputed islands and remarks made by Lee and Kim regarding Japan's emperor, South Korean officials said Wednesday.

Noda had originally said that he didn't understand why Lee made such remarks and described them as being "regrettable" and " disappointing."

The Japanese government is considering postponing an upcoming Japan-South Korea summit and intergovernmental consultations that are scheduled for the near future, in an official show of disapproval towards their South Korean counterparts, lawmakers here have said.

In addition, Finance Minister Jun Azumi also said that Japan may scale back its currency swap deal with South Korea from the current 70 billion U.S. dollar level.

Azumi will also be postponing this weekend's meeting with his counterpart in Seoul and Trade and Economy Minister Yukio Edano has decided not to hold bilateral talks with South Korean officials at the Association of Southeast Asian Nations economic ministerial meeting, which takes place later in August, officials said, in a sign the row will not rest in the near future.