South Korea's Defense Ministry announced today that it will conduct previously canceled military exercises as early as this week near a disputed cluster of islands between South Korea and Japan, escalating tension between the countries.

Both Japan and South Korea claim sovereignty over the desolate islands, which are located in fishing grounds about halfway between the two countries. The long-simmering turf dispute erupted on Friday when Japanese Foreign Minister Yukihiko Ikeda demanded that Seoul cancel plans to build a wharf on the largest of the islands.

Ikeda's statement triggered demonstrations in Seoul that included the burning of a Japanese flag. An angry South Korean President Kim Young Sam canceled a meeting with Japanese officials scheduled for today, threatened to scrap a summit session next month and said his government would "sternly deal with" Japan over the issue.

The tension between the United States' two strongest allies in Asia adds to the sense of turmoil in a region already nervous about China's menacing stance toward Taiwan and uncertainty over North Korea. China is indirectly involved in this dispute because fishermen in South Korea and Japan have complained that Chinese fishing boats are encroaching on their territorial waters. The islands dispute arises as Japan and South Korea are about to declare exclusive rights to fishing and minerals 200 miles from their shores.

South Korean officials announced today that the previously canceled quarterly military exercises near the barren islands have been reinstated because of the dispute. It said destroyers, patrol boats, anti-submarine reconnaissance planes and jet fighters would be involved in attacks on "imaginary targets" during the exercises.

South Korean newspapers reported that the country's navy and air force would be on watch to force out or capture any Japanese fishing boats that cross into South Korean territorial waters.

Not only do the two countries refer to the islands by different names -- they are Tok Do to the Koreans and Takeshima to the Japanese -- but they cannot even agree in what sea they are located. The South Koreans call the sea off their east coast the East Sea, while the Japanese refer to it as the Sea of Japan.

The row between Seoul and Tokyo has revived the most sensitive subject between the two countries: Japan's 1910-45 military occupation of Korea. While Japan and South Korea are now allies in many areas, deep bitterness remains over Japan's brutal occupation, during which Koreans were forced to take Japanese surnames, learn Japanese and produce goods for consumption in Japan.

It was just before that occupation, during Japan's 1904-5 war with Russia, that Japan seized and incorporated the islands that Korea had claimed since the 6th century. When Japan was driven out of Korea at the end of World War II, South Korea reasserted sovereignty over the islands.

But Japan continues to assert its rights to the islands in frequent letters to Seoul. Since the 1950s, however, the only inhabitants of the islands have been a small contingent of South Korean Coast Guard officials. Hwang said that over the past 20 years "one or two" other South Koreans lived on the barren, rocky islands.

In December, South Korea ratified the United Nations' Convention on the Law of the Sea, which allows it to impose a 200-mile "exclusive economic zone" off its shores. Japan is expected to do the same. The disputed islands lie within 200 miles of both shores.

By declaring an exclusive economic zone, a country asserts sole rights to the fish, oil and other minerals in the waters and seabed near its shores. According to the Law of the Sea treaty, countries with overlapping areas are supposed to work out disputes, in the International Court of Justice, if necessary. South Korea has called Japan's claims "preposterous" and said it would not dignify Japan's claim by ever going to court on the issue.

South Korea plans to spend about $20 million to build a 250-foot pier on one of the islands to allow ships to tie up in rough seas and to unload food and supplies.

"This is a very hot issue," said Park Choon Ho, a South Korean expert in international law who teaches in Japan. "There is deeply embedded sentiment against Japan."

Park said South Koreans view Japan, in light of the forced annexation in the first half of the century, as a country that stole "the whole bakery and now wants the crumbs."

Yonhap, South Korea's official news agency, took a hard line against Japan's action: "Koreans' concerns about the inauguration in Japan of a government led by a rightist leader {Prime Minister} Ryutaro Hashimoto were justified Friday."

The news service said Tokyo's action "reflects the recent rightist trend in Japan."

Tokyo appeared today to be playing down the dispute.

Koichi Kato, secretary general of Hashimoto's Liberal Democratic Party, criticized South Korea for canceling today's meeting. But his rhetoric was far less stinging than statements from Seoul.

"I am worried that relations between neighboring countries would become further complicated if we do not continue discussions," Kato said.