South Korean President Moon Jae-in on Wednesday told top business leaders that Japan's ban on vital manufacturing materials had caused an "unprecedented emergency" and warned of a drawn-out trade dispute.
Tokyo last week said it would stop the shipment of compounds used by major firms including Samsung Electronics and SK Hynix in the manufacture of microchips and smartphones, increasing long-simmering tensions over the use of forced labor during World War Two.
Since Samsung Electronics and SK Hynix, count Apple Inc and other smartphone makers as customers, the issue is raising concerns about the disruption of global supply chains.
"We can't rule out the possibility that the situation would be prolonged, despite our diplomatic efforts to resolve the issue," President Moon Jae-in said at a meeting with executives from South Korea's top 30 conglomerates.
Moon said last week's decision by Tokyo was intended to damage South Korea's economy.
The row comes with global tech companies already under pressure from a weakening global outlook, while the chip sector is particularly under pressure from weak demand.
Moon said dependence on overseas markets for the crucial materials Tokyo has cut off must be reduced in the long term.
Business leaders at the meeting discussed the possibility of acquisitions to secure core technologies in parts, materials, and equipment, a presidential spokesman said.
Despite Seoul's appeals for negotiations, Japan has refused to budge.
Tokyo's deputy chief cabinet secretary Yasutoshi Nishimura told a regular news conference Wednesday that the new restrictions were "necessary to manage the export control system appropriately for security purposes."