Yohei Kono, the speaker for the House of Representatives, said a proposal to overturn the embargo made public on Tuesday by the Japan Business Federation was "alarming" if linked to political circles.

The federation called on the government and opposition in a paper to review the ban which has been in place since 1967.

Kono, known as a dove within the ruling conservative Liberal Democratic Party (LDP), said at a private seminar: "As the idea has come from the business community, we must urge the business community to reflect upon it."

"But if the political circles are linked to it, it is an alarming question," Kono added, reflecting the country's underlying pacifist sentiment.

Prime Minister Junichiro Koizumi of the LDP has vowed to keep 550 Japanese troops deployed in Iraq under a multinational force after the transfer of authority last month.

It is the first Japanese military deployment since World War II in a country where fighting is still under way and has provoked debate about Japan's post-war constitution, which bans the use of force in international disputes.

"In view of the constitutional provision and other conditions, serious discussions must be held on arms sales for profits," Mizuho Fukushima, head of the opposition Social Democratic Party, told a news conference.

Japan has maintained guidelines that it will not export arms to communist states and countries subject to an embargo under UN Security Council resolutions, as well as those involved in or likely to be involved in international conflicts.

But the federation's paper said that because of the curbs, the country's defence industry had been left out of international military hardware and technology trends.

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