Japan is to delay a decision on paying further yen loans to China because of the two countries' worsening relations.
Shinzo Abe blamed the decision on strains between Japan and China
Chief government spokesman Shinzo Abe said Japan would not give any more loans during the current fiscal year.
Ties between China and Japan have deteriorated due to rows over energy reserves and World War II history.
Japan's aid to China is no longer significant financially but delaying further payments will be viewed as highly symbolic, a BBC reporter says.
Mr Abe said the decision did not mean the government was cutting off or freezing aid to China but Tokyo needed more time to work on what it called the "various situations" in Sino-Japanese affairs.
Yasukuni Shrine Japan PM visits shrine which honours war criminals among others
Textbooks Japanese schools have adopted text books which China says whitewash atrocities
Gas fields The countries argue over gas exploration rights in the East China Sea
Disputed islands Both countries claim ownership of Senkaku/Diaoyu islands
Tokyo has paid out billions of dollars in yen loans for Chinese infrastructure projects over the past two decades.
But its lending has declined in recent years as China's economy has grown - Japan gave China just 86bn yen ($735m) in loans in the 2004 fiscal year - and observers say this decision is unlikely to affect current projects.
Symbolic as the aid is, symbols matter a great deal in the two countries' prickly relationship, says the BBC's Jonathan Head in Tokyo.
Prime Minister Junichiro Koizumi's continued visits to the controversial Yasukuni war shrine in Tokyo have incensed China's leaders, effectively freezing high-level diplomatic contacts.
Politicians within Mr Koizumi's Liberal Democratic Party believe they must show they are willing to stand up to Chinese pressure in order to contain Beijing's power in the region, our correspondent says.
All this posturing makes it difficult for the two countries to make progress on other disputes, like their overlapping claims to territory and oil and gas reserves in the East China Sea, he says.
The two sides have failed to reach agreement on the East China Sea issue despite a fourth round of talks earlier this month.
Meanwhile on Wednesday Russian President Vladimir Putin hinted that a pipeline carrying Russian oil could be built through China, a likely disappointment to Tokyo, which has been lobbying for greater access to Russia's energy supplies.
Both Japan and China also compete for attention in Washington. The United States, which remains the major military power in Asia, is a long-standing ally of Japan and has an ambivalent attitude towards China - eager both to encourage and contain it.
But there are limits to the US' role in managing China-Japan tensions - not least because they stem from fundamental domestic political shifts which Washington can neither influence nor ignore, says BBC diplomatic correspondent Jonathan Marcus.