TOKYO (Kyodo) -- Japan will decide on Aug. 2 to remove South Korea from its list of countries that enjoy preferential treatment in trade, including in buying products that could be diverted for military use, sources familiar with the plan said Friday.

The Cabinet of Prime Minister Shinzo Abe plans to endorse South Korea's removal, which will likely take effect in late August, according to the sources. Seoul, which gained the status in 2004, will become the first country to lose its position on Japan's "white list."

Tokyo has cited "significantly undermined" trust between the two countries and "certain issues" with South Korea's export controls and regulations in its move to remove Seoul from the list.

Taking South Korea off the white list would further raise tensions with Seoul, which has objected to the move, deeming it would undermine free trade.

Trade tensions have spiked between Japan and South Korea since Tokyo tightened its controls in early July on exports of some materials used in making chips and displays for security reasons.

The Asian neighbors are also at loggerheads over compensation for wartime labor during the Japan's 1910-1945 colonial rule of the Korean Peninsula.

Currently, Japan has a total of 27 whitelisted countries including the United States, Britain, Germany, Australia, New Zealand and Argentina.

By completing simplified procedures, exporters can ship products and technology that could be diverted to military use to such whitelisted countries. But they will need to obtain approval from Japan's Ministry of Economy, Trade and Industry before exporting them to countries that are not on the white list.

Stepping up opposition to Japan's export curbs that took effect on July 4, South Korea has taken the dispute to the World Trade Organization, with both sides trading barbs at a meeting earlier this week of the Geneva-based body's General Council.

As supply chains are intertwined, the restrictions are feared to hit not only South Korean chipmakers such as Samsung Electronics Co. and SK Hynix Inc. but also Japanese exporters.