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TOYAKO, Japan (AFP) - Russian President Dmitry Medvedev and Japanese Prime Minister Yasuo Fukuda on Tuesday agreed to resolve a decades-old territorial row "as soon as possible," Japanese officials said.

"Unless we resolve the territorial issue, people's feelings towards each other in our countries will not improve," Fukuda told Medvedev in talks on the sidelines of a summit of the Group of Eight powers, a Japanese official said.

Medvedev was quoted as telling Fukuda: "If the territorial issue is resolved, bilateral relations will improve to the highest level."

Russia and Japan have never signed a peace treaty to formally end World War II due to Tokyo's claims over four islands which Soviet troops seized in 1945 off Japan's northern island of Hokkaido.

Fukuda and Medvedev agreed that the lack of a peace treaty "has been an obstacle to developing broader bilateral ties," the official said.

They agreed to sign a peace treaty "as soon as possible to normalise bilateral relations", including settlement of the territorial row, he said.

The two leaders agreed to start bilateral talks at the ministerial level later this year and Fukuda invited Medvedev's predecessor Vladimir Putin, who retains the powerful post of premier, to Japan later this year, officials said.

Medvedev said in an earlier interview with Japanese media that any solution of the territorial row should be based on declarations made in the past including a 1993 resolution after the fall of the Soviet Union in which Russia agreed the four islands were disputed.

The remarks were welcomed by Tokyo as they sounded more moderate than Putin, who had stressed the importance of a 1956 declaration that mentions the possibility of a deal only over two of the islands.

However, Japanese diplomats voiced caution Tuesday.

"We have to explore the true meaning of his remarks in the future negotiations," a senior official said.