In a landmark ruling, South Korea's Supreme Court upheld a 2013 order for the company to pay 100 million won (US$87,700) to each of the four steel workers who initiated the suit in 2005, seeking compensation and unpaid wages.

The court ruled that the former labourers' right to reparation was not terminated by a 1965 treaty normalising diplomatic ties, rejecting the position taken by the Japanese government and courts, Yonhap news agency said.

Lee Choon-shik, the 94-year-old sole surviving plaintiff, welcomed the ruling, saying in a televised news conference that it was "heartbreaking to see it today, left alone alive".

Japan and South Korea share a bitter history that includes Japan's 1910-45 colonisation of the Korean peninsula and the use of comfort women, Japan's euphemism for girls and women, many of them Korean, forced to work in its wartime brothels.

The ruling prompted a swift and angry reaction from Tokyo.

Japanese Prime Minister Shinzo Abe, speaking in parliament, said the matter had been "completely and finally" settled by the 1965 treaty. "This verdict is a decision that is impossible in light of international law," he said.

Foreign Minister Taro Kono, who summoned South Korean ambassador Lee Su-hoon after the verdict, said it "fundamentally overturned the legal basis for bilateral friendship since the normalisation of ties in 1965".

But Kono told reporters he hoped Seoul would do what was needed to prevent the matter from affecting cooperation between the two U.S. Asian allies in trying to rein in North Korea's nuclear programme.

Nippon Steel said the verdict was "deeply regrettable" and that it would review it before taking any next steps.

DAMAGE TO TIES

Japanese Deputy Chief Cabinet Secretary Kotaro Nogami told a news conference that if Seoul did not respond promptly, Tokyo would consider its options, including international arbitration.

Nippon Steel, which merged with Sumitomo Metal Industries in 2012, had argued that it was not responsible for the actions of the wartime steelmaker.

Some Seoul officials and experts fear the court's decision, final and binding, could damage bilateral relations.

If Nippon Steel refuses to compensate, the plaintiffs could request a seizure of the company's property in South Korea, which may result in an exit of some Japanese businesses, a cut in investment and a flare-up in anti-Japanese sentiment.

South Korea's foreign ministry, under a previous government, said that a seizure of assets could drive relations into an "irreversible catastrophe".

South Korean Foreign Ministry spokesman Roh Kyu-deok said it was "exploring all possibilities" but has raised the need with Tokyo for joint efforts to keep the matter from hurting ties.

"We might have to brace for not only a diplomatic crisis but a pull-out of some Japanese firms and a fall in new investment", said Shin Beom-chul, a senior fellow at Asan Institute for Policy Studies in Seoul.

Other former labourers and survivors of wartime atrocities, including the comfort women and two atomic bombings in Japan, could also follow suit, activists and analysts said.

There are 14 similar damages lawsuits pending in court against firms including Mitsubishi Heavy Industries Ltd and Mitsui Mining and Smelting Co Ltd.

A panel endorsed by the South Korean government in 2012 unveiled a list of 299 Japanese companies which it said committed "war crimes".

Tuesday's ruling eliminated the "room for diplomacy" and Japan could take the case to international arbitration, though South Korea is not a member of the International Court of Justice, said Jin Chang-soo, a senior fellow at the Sejong Institute think tank south of Seoul.

He said it was significant that the ruling upheld a 2012 verdict that Japan's occupation of the peninsula was illegal.

"But the 1965 treaty has been the foundation for the bilateral ties ever since, and now there may well be trust issues, uncertainties over our economy, and impact on cooperation over the North Korean nuclear issue", Jin added.

Shares of Nippon Steel ended up 0.44 percent at 2,065.0 yen after reaching an intra-day high of 2,086.5 yen before the court ruling.

(Reporting by Hyonhee Shin in Seoul, Kiyoshi Takenaka and Elaine Lies in Tokyo; additional writing by Linda Sieg; Additional reporting by Jeongmin Kim and Jane Chung in SEOUL, and Linda Sieg, Yuka Obayashi and Kiyoshi Takenaka in TOKYO; Editing by Robert Birsel and Nick Macfie)

Diplomacy

Japan should avoid aggravating historical tensions in a diplomatic row over South Koreans forced to work for Japanese firms during World War Two, South Korea's foreign ministry has warned.

South Korea's top court ruled last month that Japan's Nippon Steel & Sumitomo Metal Corp must compensate four South Koreans for their forced labour during the war, which Japan has denounced as "unthinkable".

The binding court verdict is straining relations between the neighbours and could affect bilateral efforts to rein in North Korea's nuclear programme, analysts say.

Japan and South Korea share a bitter history that includes Japan's 1910-45 colonisation of the Korean peninsula and the use of comfort women, Japan's euphemism for girls and women, many of them Korean, forced to work in its wartime brothels.

Japan's Foreign Minister Taro Kono said in a Bloomberg interview on Sunday that "it would be difficult for any country to do anything with the South Korean government" if a court can reverse Seoul's agreements made under international law.

Kono's remarks threatened to add fuel to the controversy, South Korea's foreign ministry said late on Tuesday.

"South Korea is very concerned that Japan's leaders in positions of responsibility are disregarding the root cause of the issue...and continue to make comments that rouse our public's emotions," the ministry said in a statement.

"The Japanese government must be clearly aware that excessive political emphasis on the present case will be of no help to the future-oriented relationship between South Korea and Japan," the ministry added.

The row was triggered by a Supreme Court ruling that Nippon Steel pay 100 million won (US$87,700) to each of the four steel workers who sought compensation and unpaid wages, saying that their rights to reparation was not terminated by a 1965 treaty.

Japan says the issue had been resolved "completely and finally" by the 1965 agreement.

Chief Cabinet Secretary Yoshihide Suga said on Wednesday South Korea was in violation of international law after the Supreme Court issued its verdict, and Seoul should take steps to redress the situation immediately.

"We are watching to see what concrete steps the South Korean government will take," Suga said.

A senior official in South Korea's presidential office said on Wednesday the government needed time and Japan's latest comments were not helpful.

"There has been a ruling by the judiciary that differs from the previous government stance, so we have to arrange our stance," said the official, who declined to be named.

"This takes time, and the Japanese government overly criticizing our government does not help resolve the situation," the official added.

South Korea says there were nearly 150,000 victims of wartime forced labour, 5,000 of whom are alive. Japan says the compensation issue was settled by the 1965 treaty normalizing ties.

In December, a South Korean appeals court is expected to rule on a similar case of compensation claims against Mitsubishi Heavy Industries.

(Published by Channel New Asia, November 7, 2018)