Japan and South Korea agreed Friday to continue close communication in a bid to resolve a dispute over wartime labor, according to the Japanese government, a day after Seoul suggested a solution to the issue that has worsened bilateral ties.

Foreign Minister Yoshimasa Hayashi and his South Korean counterpart Park Jin pledged to restore healthy bilateral relations and further develop them by resolving the pending issue, when they spoke over the phone, the Japanese Foreign Ministry said.

On Thursday, Seoul said it was considering a proposal for a South Korean foundation to compensate plaintiffs on behalf of Japanese corporate defendants that allegedly used forced labor during Japan's colonial rule of the Korean Peninsula, as the best possible option.

South Korea's Foreign Ministry revealed the plan at a public hearing in Seoul, provoking a harsh backlash from the plaintiffs and their supporters who want the Japanese side to pay the compensation and apologize.

Under South Korean President Yoon Suk Yeol's predecessor, Moon Jae In, bilateral ties soured to the worst level in decades, due largely to the wartime labor issue. Japan maintains that all claims stemming from its colonial rule between 1910 and 1945 were settled "completely and finally" under a 1965 bilateral agreement.

South Korean Supreme Court rulings in 2018 ordered Mitsubishi Heavy Industries Ltd. and Nippon Steel Corp. to pay damages to the plaintiffs.

But the two Japanese companies have not complied with the compensation orders as they heeded the Japanese government's position. Other South Korean courts have ordered the liquidation of local assets seized from Mitsubishi Heavy and Nippon Steel, which has yet to be carried out.

Yoon, who replaced Moon last May with a pledge to take a future-oriented approach toward Japan, met Japanese Prime Minister Fumio Kishida in November in Cambodia, with the two agreeing to work for an "early settlement" of the wartime labor issue.

A Japanese government source said Thursday that Tokyo is considering allowing Japanese firms to donate to the South Korean foundation as long as the South Korean side gives up demands for money from Mitsubishi Heavy and Nippon Steel.

At their talks on Friday, Hayashi and Park also confirmed that Japan and South Korea, along with the United States, will keep working together to address North Korea's "provocative acts" of launching ballistic missiles, the Japanese Foreign Ministry said.

Related coverage:

Foundation to compensate wartime labor damages is best: South Korea gov't

Yoon wishes for return to best period of South Korea-Japan relations