South Korean president Moon Jae-in on Wednesday told top business leaders that Japan's ban on exports of chemicals crucial to the country's tech sector had caused an "unprecedented emergency" and warned of a drawn-out trade dispute.
Tokyo last week said it would stop shipment of compounds used by major firms including Samsung Electronics and SK Hynix in the manufacture of microchips and smartphones, increasing long-simmering tensions over the use of forced labour during World War Two.
With the two firms accounting for almost two-thirds of global chip production, the issue is raising concerns about the impact on the supply chains across the planet.
Moon on Wednesday met executives from Samsung Electronics and SK Group as well as Hyundai Motor Co. and Lotte Group to discuss the crisis, telling them last week's decision by Tokyo was intended to damage South Korea's economy.
Our "government is doing its best to solve the matter diplomatically. I hope the Japanese government will reciprocate", he said at the presidential office in Seoul, adding: "We cannot rule out the situation will be prolonged."
A "joint government-private sector response system is required as we are in an unprecedented emergency".
South Korea has said the measures violate international law and has threatened to raise the issue at the World Trade Organization.
It is the latest development in a spat over South Korean court rulings requiring Japanese firms to compensate victims of a wartime forced labour policy.
The row comes with global tech companies already under pressure from a weakening global outlook, while the chip sector is particularly under pressure from weak demand.
Moon said dependence on overseas markets for the crucial materials Tokyo has cut off must be reduced in the long term.
Despite Seoul's appeals for negotiations, Japan has refused to budge.
Tokyo's deputy chief cabinet secretary Yasutoshi Nishimura told a regular news conference Wednesday that the new restrictions were "necessary to manage the export control system appropriately for security purposes".
Seoul has dismissed reports in Japanese media that say the South transferred some of the imported Japanese materials to North Korea.
South Korea has said it is arranging a meeting with Japanese officials in Tokyo on Friday to discuss the issue.