In June, Russia asked Japan to participate in joint projects infrastructure and energy projects on the islands, RIA Novosti reported.
Both nations claim the islands -- Iturup, Kunashir, Shikotan and Habomai -- as their own. Soviet forces claimed the islands after occupying them at the end of World War II, and Japan still claims sovereignty over them.
The dispute over the islands has overshadowed Russian-Japanese relations.
"Participation of Japanese companies in joint development projects under Russian law would amount to recognition of Russian sovereignty [over the islands]," Japan's Kyodo News Agency quoted an unnamed diplomat as saying.
Senate Democrats to pull all-nighter on climate change
Teacher apologizes for showing sexual image of herself in class