The official spoke on condition of anonymity given the diplomatic sensitivities in the dispute between the two main US allies in Asia.

The Seoul-Tokyo relationship began to deteriorate late last year following a diplomatic row over compensation for wartime forced laborers during Japan's occupation of Korea.

They plumbed fresh depths last week when South Korea announced it was scrapping an intelligence-sharing pact with Japan in spite of rising tensions with North Korea and an increasing challenge presented by China in the region.

The US official said the dispute had "pretty much damaged the possibility of continuing in this information-sharing agreement," but added: "It is not completely lost ... There are opportunities to hopefully recover." 

He said there was blame to be apportioned to both sides, although he stressed South Korea's decisions on the pact and on a move to hold two days of expanded drills from Sunday around an island also claimed by Japan.

"This is a dispute between leaders on both sides," he said. "There have been unhelpful choices made on both sides, which is why we're not just talking about one or the other." 

The problem is, and the reason why we're talking about it today, is because the most recent action on the part of Seoul directly affects US security interests. This is something we can't sit quiet for." 

"We didn't find that exercise particularly helpful," the official said of the South Korean drills on Sunday. 

"These are actions that don't contribute to resolving this problem. It simply exacerbates it. We would appreciate it if both sides would allow things to settle down and then earnestly get back" to negotiations.

A second senior US State Department official said Washington was encouraged by continued talks at working level between the sides. "There are folks in both countries (who) are eager to improve relations," he said. (Reuters)