Russian officials say they are drawing up proposals to settle a dispute with Japan over the sovereignty of four offshore islands, which were occupied by the Soviets at the end of the Second World War.

Both Russia and Japan say they want the dispute settled during a summit in Moscow later this month between President Yeltsin and the Japanese Prime Minister, Keizo Obuchi.

But officials in Moscow dismissed reports that the islands would be given enhanced autonomy.

Islanders last week petitioned the Russian government to lease back the islands to Japan in order to improve their economic conditions.