"I understand a lot of people are supporting economic sanctions," Koizumi told a news conference to mark the passage of the national budget.

"I don't buy an idea that economic sanctions should come first," Koizumi said.

"President (George W.) Bush and I have agreed that the North Korean issue should be resolved peacefully and diplomatically," he said.

"In line with policies of dialogue and pressure, we have to work persistently and solve the pending issue as quickly as possible."

Japan has seen growing public calls to impose economic sanctions on the Stalinist state after it gave false evidence in a bid to prove the deaths of Japanese whom it kidnapped to train spies during the Cold War.

But the United States, China and South Korea have warned Japan to be careful with cash-strapped but heavily armed North Korea, which is embroiled in a separate dispute over its nuclear ambitions.

Koizumi, who has invested political capital by trying to engage North Korea including two visits to Pyongyang, said he expected North Korea to return to six-nation talks on its nuclear ambitions.

"I think North Korea will come back to the six-way talks because it is in North Korea's best benefit to discuss the nuclear issue at the six-way talks," he said.

"The six-way talks include the United States, China, Russia and Japan," he said. "I don't think North Korea will ignore the six-way talks."

North Korea has boycotted the talks since last June, demanding bilateral talks with the United States and warning it has a nuclear deterrent.

Koizumi also rejected any immediate UN Security Council punishment of North Korea, saying it was possible to bring the case before the Council "but not now."

North Korea, which fired a missile over Japan in 1998, has repeatedly warned that Japanese economic sanctions would mean a "declaration of war" and be answered with "decisive" retaliation.

A Japanese ruling party study said economic sanctions against North Korea would cost Pyongyang 1.2 billion dollars a year, making its economy contract by seven percent.

Tokyo has already suspended food aid after Pyongyang last November handed Japan ashes and other evidence to prove the deaths of eight Japanese kidnap victims. DNA tests showed that the ashes belonged to other people.

North Korea released five kidnap victims in 2002 in exchange for Japanese aid but insists that others are dead. Japan believes the eight are kept under wraps because they know state secrets.

Earlier Wednesday, Chinese President Hu Jintao met North Korean Premier Pak Pong-Ju in Beijing and urged Pyongyang to play a constructive role in talks on a nuclear-free Korean peninsula.

"The Chinese side will continue its work calling for peace and promoting dialogue and hopes that all sides can make common efforts and play constructive roles in resuming six-party talks," Hu was quoted by Xinhua news agency as telling Pak.

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