SEOUL, South Korea (AP) — South Korea said Thursday it is canceling an intelligence-sharing pact with Japan amid a bitter trade dispute, a surprise announcement that is likely to set back U.S. efforts to bolster mutual security cooperation with two of its most important allies in the Asian region.

The South Korean decision will also further aggravate its ties with Japan, which are already at their lowest point since the two countries established diplomatic ties in 1965. Japan colonized the Korean Peninsula from 1910 to 1945.

Many experts had predicted that South Korea would be unlikely to spike the 3-year-old intelligence-sharing deal for the sake of its relations with the United States. South Korea has been seeking U.S. help in resolving the trade dispute, and Seoul and Washington have also been working together to restart stalled talks on stripping North Korea of its nuclear weapons.

South Korea’s presidential office said it decided to terminate the intelligence deal because Japan’s recent decision to downgrade South Korea’s trade status caused a “grave” change in security cooperation between the countries.

“Under this situation, the government has determined that maintaining the agreement, which was signed for the purpose of exchanging sensitive military intelligence on security, does not serve our national interests,” Kim You-geun, the deputy director of South Korea’s presidential national security office, said in a nationally televised statement.

In recent weeks, Japan has imposed stricter controls on exports to South Korea of three chemicals essential for manufacturing semiconductors and display screens - key export items for South Korea - and decided to remove South Korea from a list of countries granted preferential trade status.

South Korea accuses Japan of weaponizing trade to punish it over a separate dispute linked to Japan’s brutal colonial rule of the Korean Peninsula. Japan denies that, saying its steps were taken because of unspecified security concerns.

The Japanese trade curbs triggered an outburst of anti-Japan sentiment in South Korea. Many South Korean citizens rallied in the streets, canceled planned holiday trips to Japan and launched widespread boycotts of Japanese beer, clothes and other products. The South Korean government, for its part, decided to downgrade Japan’s trade status.

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