Japan is halting $4.7m (£2.3m) in funding for a human resources centre in Burma, as economic pressure mounts on the military government there.
Burma's military has ruled the nation of 51m for decades
The move follows the death of a Japan's journalist during the Burmese military's bloody suppression of anti-government protests last month.
It reflected Japan's "strong concerns" over the situation, a minister said.
On Monday, the EU upped sanctions on Burma and the US urged "consequential" action against its leaders.
Japan is a leading aid donor to Burma and has been criticised in the past for failing to take a harder line against the military government.
The funding, promised in 2005, was to have been used for a centre at Rangoon University, where courses in economics, management and Japanese would have been taught.
But the shooting of video journalist Kenji Nagai, 50, sparked outrage in Japan and has led to a tougher position.
''Japan has to show its stance and we can't effectively be supporting the military junta at this point in time,'' said Foreign Minister Masahiko Komura.
The funding represented about one sixth of Japan's annual aid to Burma.
But Japan stopped short of ending all aid and remains one of the military junta's significant trading partners - leaving it unclear exactly what effect the cancellation might have.
In Washington, a White House spokesman said the US was considering toughening its own existing sanctions.
"Without telegraphing too many specifics or details, it could include expanding the number of people affected by the travel ban, it could include additional financial sanctions against the junta or those involved," Gordon Johndroe told the BBC's World Today programme.
Troops detained thousands of people during the crackdown
At a question-and-answer session in the state of Arkansas, meanwhile, President George W Bush made it plain that it was his intention to act - and to act soon - against Burma.
He advocated "enormous international pressure to make it clear to the generals that they will be completely isolated and not accepted into the international community of nations".
Earlier on Monday, the European Union agreed new punitive measures against Burma.
On top of a travel ban and a freeze on assets, Burma's generals now face fresh embargoes on some of their more lucrative exports - including jade, rubies and teak.
However, correspondents say, European sanctions have had practically no impact on Burma, as more than 90% of the country's trade is with its Asian neighbours.
The new measures will not prevent the French energy giant Total from doing business with the junta, though diplomats say that may come later.
Meanwhile UN envoy Ibrahim Gambari has described as "extremely disturbing" new arrests in Burma and has called on the junta to stop detaining democracy activists.
Burma's security forces at the weekend rounded up three of the remaining leaders from September's demonstrations, according to human rights group Amnesty International.
Mr Gambari is currently in South East Asia for talks with Burma's neighbours and key trading partners.
Burma says 10 people died during its crackdown on the protests, but diplomats believe the true figures are much higher. Hundreds of people are thought to be in detention.