Japan has withdrawn from an international fleet review this week after rejecting demands that its warship take part without its “rising sun” flag ensign – regarded by many Koreans as a symbol of Japanese militarism and colonial rule.

South Korea – the host nation – had asked all 14 countries sending vessels to the five-day event, which begins on Thursday at a naval base on the island of Jeju, to ensure they display only their national flags and the flag of South Korea.

The rule – in effect a demand for Japan to remove the kyokujitsuki flag from a destroyer due to take part in the exercise – was introduced amid simmering bilateral disputes over Japan’s use of Korean sex slaves during the second world war and ownership of a group of islets called Takeshima in Japan and Dokdo in South Korea.

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South Korea had conveyed its stance that “the Japanese side should fully consider the rising sun flag’s emotional connotation to our people”, the foreign minister, Kang Kyung-wha, said.

But Japan, whose maritime self-defence forces (SDF) were permitted to fly the flag during similar reviews in 1998 and 2008, said it had no choice but to withdraw.

“When it comes to the ensign, domestic laws and regulations stipulate that it must be hoisted at the stern,” the defence minister, Takeshi Iwaya, said. “Regrettably, we have reached the decision that we have no choice but to cancel our participation.”

The flag, used by Japanese imperial navy in campaigns around Asia and the Pacific before and during the second world war, features a red disc and 16 rays extending outwards and was adopted by the maritime SDF in 1954.

“Members [of the self-defence forces] take pride in the ensign, and there is no way we will go there without hoisting the flag,” Katsutoshi Kawano, the SDF chief of staff, said.

North Korea joined the South in demanding the flag be banned, with the state-controlled Uriminjokkiri website describing it as “a war-crime flag that the 20th-century Japanese imperialists used when executing their barbaric invasions into our nation and other Asian nations. Planning to enter flying the rising sun flag is an unbearable insult and ridicule to our people”.

South Korea’s navy said Japan’s withdrawal was “regrettable”, but added that the decision must not affect “promising ties” between the two countries’ navies.

“Japan wasn’t able to accept the fleet review principles notified by our navy and we couldn’t accept Japan’s position,” it said in a statement. “The naval forces of both countries will continue military exchanges and efforts to strengthen their friendship.”