Japan will decide early next month whether to remove South Korea from its list of countries given preferential treatment when it comes to purchasing particular products that could also be used for military purposes, sources with knowledge of the matter said Friday.

According to Kyodo News, the decision by Japan on whether to remove South Korea from its preferential "white list" will be made on Aug. 2 and will likely take effect from later the same month.

If Japan goes ahead with the move, which will be endorsed by the Cabinet of Prime Minister Shinzo Abe, it will be the first time a country has been removed from Japan's white list.

Seoul has been on the white list since 2004 and has been guaranteed preferential treatment in terms of importing certain products from Japan.

Those close to the matter have said, however, that tensions could further sour between both sides in light of the latest move and as Japan has recently tightened export controls on some key materials imported by South Korea citing national security concerns and claiming that Seoul has "severely damaged" mutual trust.

The latest potential escalation by Japan comes amid an ongoing wartime labor dispute that Tokyo believes Seoul has not cooperated in trying to resolve bilaterally, or by way of the establishment of an arbitration panel involving a third party.

The Japanese side believes Seoul has missed a deadline to establish an arbitration panel to settle the dispute over wartime labor.

Chief Cabinet Secretary Yoshihide Suga, meanwhile, told a press briefing on Friday that the trade ministry is still conducting reviews of public sentiment here towards removing South Korea from its white list and maintained that nothing had been formally decided as yet.

"As I mentioned before, we believe it's an appropriate step from enforcing effective export controls to remove South Korea from the white list," Suga told the press briefing on the matter.

Japan has a total of 27 countries on its whitelist, including the United States, Britain, Germany, Australia, New Zealand and Argentina, and whitelisted countries can, through simplified procedures, receive products exported from Japan that could be potentially be diverted for military use.

In order to then export the products to countries not on the white list, the countries only need to obtain approval from Japan's trade ministry.

South Korea has taken the export row to the World Trade Organization, but Japan maintains the measure is not in violation of WTO rules or is undermining free trade.