They are known as "Dokdo" in Korean and "Takeshima" in Japanese.

"The flag is unacceptable, based on our stance on our sovereignty of Takeshima," Chief Cabinet Secretary Yoshihide Suga told reporters, adding the incident with just days until the start of the Games in Pyeongchang was "extremely regrettable."

"We lodged a protest strongly insisting on our stance through diplomatic channels to South Korea," he said, adding that Tokyo will continue to urge Seoul to deal with the case "appropriately."

The new spat comes a month after Japan opened a museum in Tokyo devoted to the disputed islands, drawing an immediate protest from South Korea.

The museum, run by the Japanese government, also displays documents and photographs defending Japan's claims over another set of islands disputed with China.

The controversial flag has already been waved by spectators during a women's ice hockey practice match between Sweden and the unified Korean team.

Japanese Prime Minister Shinzo Abe will travel to South Korea for the opening ceremony of the Games, where he is expected to hold talks on Korean "comfort women" used by the Japanese as war-time sex slaves -- another thorny issue between the two countries. (AFP)