Japan on Wednesday took the next step in pushing South Korea to begin an arbitration process for a dispute over wartime labor that has seen ties between the neighboring countries sink to their lowest point in years.

A day after South Korea failed to meet a deadline to name a member to an arbitration panel along with Japan and a third country, Tokyo asked Seoul under the terms of a 1965 bilateral accord to establish a panel selected entirely by other countries.

Rather than comply, however, South Korea made its own offer — to open diplomatic talks regarding the issue on the condition that Japanese companies help compensate victims of forced labor during Japan's colonial rule of the Korean Peninsula. Tokyo quickly said it rejects the offer.