Japan and the United States immediately welcomed the announcement, but victims have criticised the proposal because it falls far short of their demand for a full apology from Tokyo and direct compensation from the Japanese companies involved.

Seoul and Tokyo have already ramped up security cooperation in the face of growing threats from Kim Jong Un's regime, but bilateral ties have long been strained over Tokyo's brutal 1910-45 colonial rule of the Korean peninsula.

Around 780,000 Koreans were conscripted into forced labour by Japan during the 35-year occupation, according to data from Seoul, not including women forced into sexual slavery by Japanese troops.

Seoul's plan is to take money from major South Korean companies that benefited from a 1965 reparations deal with Tokyo and use it to compensate victims, Foreign Minister Park Jin said.

The hope is that Japan will "positively respond to our major decision today with Japanese companies' voluntary contributions and a comprehensive apology," he added.

"I believe that the vicious circle should be broken for the sake of the people at the national interest level," Park added.

Tokyo insists the 1965 treaty -- which saw the two countries restore diplomatic ties with a reparations package of about $800 million in grants and cheap loans -- settled all claims between the two relating to the colonial period.

But Tokyo's Foreign Minister Yoshimasa Hayashi welcomed the new plan, telling reporters it would help to restore "healthy" ties after years of tensions.

Japanese media have reported that Yoon could soon visit Tokyo, possibly even for a Japan-South Korea baseball game this week.

- 'What Japan does next' -

Washington hailed what it called a "groundbreaking new chapter of cooperation and partnership between two of the United States' closest allies," according to a statement from the White House.

But analysts said the significance of the announcement "will be measured in large part by what Japan does next," Benjamin A. Engel, research professor at the Institute of International Affairs at Seoul National University, told AFP.

At a minimum, some kind of apology from Tokyo and donations from two Japanese companies which have been ruled liable by Korea's Supreme Court would help ensure the South Korean public accept the deal, he said.

"Without these steps by the Japanese side, the announcement by the Korean government will not amount to much," he said.

The move to resolve the forced labour issue follows years of disputes over World War II sex slaves, which had soured Japan-South Korea ties.

Seoul and Tokyo reached a deal in 2015 aimed at "finally and irreversibly" resolving that issue, with a Japanese apology and the formation of a 1 billion yen fund for survivors.

But South Korea later backed away from the deal and effectively nullified it, citing the lack of victims' consent.

The move led to a bitter diplomatic dispute that spread to affect trade and security ties.

- Victims -

Seoul's foreign minister Park said the plan had the support of many victims' families, adding Seoul would "see them one by one and consult with them and seek their understanding sincerely".

But the plan has already drawn strong protest from victims groups, who have won cases on this very issue in 2018, when Seoul's Supreme Court ordered some Japanese companies to pay compensation.

"It is as if the bonds of the victims of forced labour are being dissolved through South Korean companies' money," Lim Jae-sung, a lawyer for several victims, said in a Facebook post on Sunday.

"It is a complete victory for Japan, which can't spare even one yen on the issue of forced labour."