TOKYO - Japanese and South Korean governments have begun discussing ways to resolve their months-long spat over compensation for wartime labor, with the creation of a fund to provide money for economic cooperation as an option, sources told Kyodo news agency Monday.

According to sources familiar with bilateral ties, the idea being considered is for the government and companies in South Korea to set up a fund while Japanese companies will also participate. However, the fund will be used under the name of economic cooperation, not as compensation for wartime labor.

If such an agreement can be reached, it would allow Japanese firms to provide money to the South Korean side without contradicting Tokyo's stance that the issue of compensation was settled "finally and completely" under a 1965 bilateral accord.

Meanwhile, the Japanese government does not intend to make monetary contributions, sources said.

The idea has come to light as Japanese Prime Minister Shinzo Abe and South Korean Prime Minister Lee Nak-yon agreed last week to continue dialogue amid deterioration in bilateral ties.

The relationship of the Asian neighbors has sharply worsened since South Korea's top court ordered some major Japanese firms to compensate South Korean plaintiffs over forced wartime labor during Japan's 1910-1945 occupation of the Korean Peninsula, with lawyers being allowed to seize the assets of some Japanese firms.

Japan, for its part, has claimed the rulings are not in line with international law and run contrary to the foundation of friendly and cooperative relations between the two neighbors since the 1965 normalization of diplomatic ties.

The two sides are expected to speed up their talks to break the current impasse and find an agreeable solution.