Finance Minister Sadakazu Tanigaki and Foreign Minister Taro Aso agreed on the plan over the telephone, officials who declined to be identified told AFP.

But the foreign ministry plans to fight for a greater aid budget, which has steadily declined over the past decade.

"This is only an agreement on guidelines as required by the finance ministry so we will aim to increase the budget through procedures that continue until the end of this year," a foreign ministry official said.

In the current fiscal year, the budget for foreign aid was down 3.4 percent at 760 billion yen (6.5 billion dollars), the result of reductions almost every year since 1997 when it stood at 1.17 trillion yen.

Prime Minister Junichiro Koizumi pledged in the last year's Group of Eight Summit in Gleneagles, Scotland to double the amount of aid to African countries over the three years.

But budgetary constraints have caused frictions between the finance ministry and other ministries including the foreign ministry.

Japan's debt is the highest among industrialized nations after its government spent trillions of yen on emergency stimulus packages to try to haul the economy out of its deflationary doldrums following the burst of the asset bubble.

Japan -- the second largest donor in dollar terms after the United States -- has in recent years redirected its foreign aid, targeting countries in South and Southeast Asia and Africa, which are crucial for its goal of winning a permanent seat on the UN Security Council.

Japan meanwhile plans to terminate aid to China, with whom relations are at a historic low, before Beijing hosts the Olympics in 2008.

The finance ministry is working to compile budget guidelines, better known as the "ceilings" for spending, in time for Koizumi's cabinet to approve them on Friday.

When the ceilings are set, the ministry will gather spending requests to draft the budget for release in December.