In the years following the end of World War II, Japan has only had a Defense Agency with a lower status than other ministries.

The agency has long pushed for ministry status and the post of defense minister as national guilt for wartime atrocities subsides and the nation takes a greater role in international peace-keeping and disaster relief efforts.

Its attempts had until now failed because of political sensitivities over memories of Japan's past military aggression, but a security council chaired by Prime Minister Junichiro Koizumi approved the bill on Thursday.

The ruling Liberal Democratic Party's coalition partner, New Komeito, which had previously blocked an upgrade of the agency, also gave its approval.

"It is necessary to give (the agency) ministry status like other countries at a time when the importance of defense issues is increasing," Chief Cabinet Secretary Shinzo Abe told reporters. "It's a natural move."

The bill is unlikely to be approved during the current session of parliament, which ends on June 18. Observers say passage is more likely to come during an extraordinary parliamentary session set to begin later this year.

The draft aims to upgrade peacekeeping and other overseas operations, making them part of the regular duties of Japanese troops along with home defense.

"If it becomes a ministry, its responsibility will be heavy. We have to take a hard look at ourselves," said Defence Agency head Fukushiro Nukaga.

Japan, which renounced war under a US-imposed 1947 constitution, calls its troops "Self-Defense Forces" but has sent some 600 troops to Iraq in a first deployment since World War II to a country where fighting is under way.

Dispatched to the relatively safe southern city of Samawa on a humanitarian mission, the troops rely on protection from Australian and British forces, and are only permitted to use their weapons in self-defense.

The bill will also scrap the scandal-tainted Defense Facilities Administration Agency and integrate its functions into the planned ministry.

Created in 1954, the Defense Agency is under the direct control of the prime minister while its director general Nukaga is a state minister in the cabinet.