Russian Prime Minister Dmitry Medvedev on Wednesday signed a document designating disputed islands controlled by Moscow but claimed by Japan as a special economic zone, Interfax news agency reported.

With the designation, companies operating on the islets off Japan's northernmost main island of Hokkaido would receive tax breaks which could prompt foreign firms to locate operations there possibly affecting potential joint economic activities between Japan and Russia.

The isles of Etorofu, Kunashiri, Shikotan and the Habomai islet group -- called the Southern Kurils in Russia and the Northern Territories in Japan -- were seized by the Soviet Union in August 1945 when Japan surrendered to end World War II.

The territorial dispute has prevented the two nations from signing a postwar peace treaty.

On his visit to Sakhalin on Wednesday, Medvedev was quoted by the news agency as saying the fishery, infrastructure and construction industries are likely to grow as a result of the Russian government designating the islets as a special economic zone.

Prime Minister Shinzo Abe and Russian President Vladimir Putin agreed in December 2016 to start joint economic activities on the islands. Japan hopes the activities could pave the way for settling the territorial row, while Russia seeks Japanese investment.

The two countries, however, would need to work out ways to conduct the activities in a way that does not raise judicial problems, as they remain far apart on the issue of sovereignty over the area.

Abe and Putin are expected to hold talks on the issue in Vladivostok in early September.