"Forced to review aid policy" (Photo AFP)

Japan's special peace envoy to Sri Lanka, Yasushi Akashi, told journalists in Tokyo on Thursday "We could be forced to review our aid policy if military action keeps escalating, although Sri Lanka wants Japan to continue it" .

Japan is Sri Lanka's largest foreign donor, giving about $9bn in grants, loans and aid since 1985, including around $400m in 2007.

Calling for a negotiated settlement, the Japanese envoy said that the donor nations ban on the LTTE has made it difficult.

"Demonising the Tigers "

Japan has refused to brand the Tamil Tigers as terrorists despite similar prohibitions by the United States, European Union and India.

"By demonising the Tigers and calling them terrorists, they have constrained negotiations," Akashi said.

But he said Japan still hoped to remain engaged in Sri Lanka's future for decades to come.

The Japanese special envoy met Sri Lankan political leaders including President Mahinda Rajapaksa in a visit this year a day before the government unilaterally ending the five year old ceasefire.