Tokyo's High Court has rejected an appeal for compensation by 10 Chinese survivors of Japanese germ warfare experiments during World War II.
The Chinese survivors and their relatives plan to appeal
The decision may further stoke tensions between China and Japan - already at their lowest point in years.
China has called for a site where such experiments were conducted to be given UN world heritage status.
The UN Secretary-General Kofi Annan urged both nations to defuse their growing crisis.
Mr Annan said the leaders of both China and Japan should use this week's Asia-Africa summit in Indonesia to improve their relations, and alleviate the worsening situation.
Japanese germ warfare centre in NE China, 1936-1945
At least 3,000 people killed at the unit, but many others thought to have died nearby
Tokyo has admitted to the experiments, but so far no one has been charged
No compensation given to victims
Tensions between Japan and China began to mount earlier this month, when Tokyo approved a set of controversial history textbooks, which critics say whitewashed its wartime record.
In rare public rallies - which analysts say have had Beijing's tacit approval - angry Chinese protesters marched in several major cities and targeted Japanese buildings.
Further disputes, over Japan's quest to gain a permanent seat at the UN Security Council and access to drilling rights in the East China Sea, quickly followed.
On Tuesday, two other developments looked set to cause further dispute.
A Japanese court again rejected an appeal by 10 Chinese survivors and their relatives of biological warfare experiments carried out in China in the 1930s and 1940s, and of the 1937-38 Nanjing massacre.
The court upheld a ruling by a lower court in 2002, that international law prohibits foreigners from seeking damages directly from the Japanese government.
Meanwhile China's state media called for a site where biological weapons were tested on humans, Unit 731 in north-eastern Heilongjiang province, to be given UN World Heritage status.
China says 3,000 people were killed at Unit 731 during World War II, while 200,000 residents living near the camp may have died as a result of the experiments.
Jin Chengmin, a researcher with the Harbin Municipal Academy of Social Sciences, said that the Nazi concentration camp of Auschwitz in Poland and the Hiroshima Peace Memorial in Japan already received UN protection.
"The Unit 731 site should also qualify as a World Heritage site," Mr Jin told the state-run China Daily newspaper.
"The remaining ruins can serve as a reminder of the horrible atrocities Japanese troops committed in China," he said.
The BBC correspondent in Beijing Louisa Lim says it is no coincidence these calls are coming now - 60 years after the event.
Ties with Japan have now plummeted to their lowest point for decades - a fact which Kofi Annan seems anxious to address.
Mr Annan said on Monday that China and Japan had important ties, and he hoped they could resolve their differences peacefully.
He suggested that the Chinese President, Hu Jintao, and Japan's Prime Minister Junichiro Koizumi attempt a rapprochement at the Asia-Africa summit which opens on Thursday.
But Mr Koizumi said: "If it's going to be the exchange of harsh words, it's better not to meet".
Japan's Foreign Minister Machimura Nobutaka finished a visit to China on Tuesday without resolving the crisis.