South Korea said Thursday it is canceling an intelligence-sharing pact with Japan amid a bitter trade dispute, a surprise announcement that is likely to set back U.S. efforts to bolster mutual security cooperation with two of its most important allies in the Asian region.

The South Korean decision will also further aggravate its ties with Japan, which are already at their lowest point since the two countries established diplomatic ties in 1965. Japan colonized the Korean Peninsula from 1910 to 1945.

Many experts had predicted that South Korea would be unlikely to spike the 3-year-old intelligence-sharing deal for the sake of its relations with the United States. South Korea has been seeking U.S. help in resolving the trade dispute, and Seoul and Washington have also been working together to restart stalled talks on stripping North Korea of its nuclear weapons.

Kim You-geun, deputy director of South Korea's presidential national security office speaks at the presidential Blue House in Seoul, South Korea, Thursday, Aug. 22, 2019. South Korea says it is canceling an intelligence-sharing pact with Japan amid a bitter trade dispute with its Asian neighbor. (Bae Jae-manYonhap via AP)

Kim You-geun, deputy director of South Korea's presidential national security office speaks at the presidential Blue House in Seoul, South Korea, Thursday, Aug. 22, 2019. South Korea says it is canceling an intelligence-sharing pact with Japan amid a bitter trade dispute with its Asian neighbor. (Bae Jae-manYonhap via AP)

South Korea's presidential office said it decided to terminate the intelligence deal because Japan's recent decision to downgrade South Korea's trade status caused a "grave" change in security cooperation between the countries.

"Under this situation, the government has determined that maintaining the agreement, which was signed for the purpose of exchanging sensitive military intelligence on security, does not serve our national interests," Kim You-geun, the deputy director of South Korea's presidential national security office, said in a nationally televised statement.

In recent weeks, Japan has imposed stricter controls on exports to South Korea of three chemicals essential for manufacturing semiconductors and display screens — key export items for South Korea — and decided to remove South Korea from a list of countries granted preferential trade status.

South Korean protesters shout slogans during a rally demanding the South Korean government to abolish the General Security of Military Information Agreement, or GSOMIA, an intelligence-sharing agreement between South Korea and Japan, in front of Japanese embassy in Seoul, South Korea, Thursday, Aug. 22, 2019. The letters read "Abolish the General Security of Military Information Agreement, or GSOMIA. (AP PhotoLee Jin-man)

South Korean protesters shout slogans during a rally demanding the South Korean government to abolish the General Security of Military Information Agreement, or GSOMIA, an intelligence-sharing agreement between South Korea and Japan, in front of Japanese embassy in Seoul, South Korea, Thursday, Aug. 22, 2019. The letters read "Abolish the General Security of Military Information Agreement, or GSOMIA. (AP PhotoLee Jin-man)

South Korea accuses Japan of weaponizing trade to punish it over a separate dispute linked to Japan's brutal colonial rule of the Korean Peninsula. Japan denies that, saying its steps were taken because of unspecified security concerns.

The Japanese trade curbs triggered an outburst of anti-Japan sentiment in South Korea. Many South Korean citizens rallied in the streets, canceled planned holiday trips to Japan and launched widespread boycotts of Japanese beer, clothes and other products. The South Korean government, for its part, decided to downgrade Japan's trade status.

Kim You-geun, deputy director of South Korea's presidential national security office speaks at the presidential Blue House in Seoul, South Korea, Thursday, Aug. 22, 2019. South Korea says it is canceling an intelligence-sharing pact with Japan amid a bitter trade dispute with its Asian neighbor. (Bae Jae-manYonhap via AP)

Kim You-geun, deputy director of South Korea's presidential national security office speaks at the presidential Blue House in Seoul, South Korea, Thursday, Aug. 22, 2019. South Korea says it is canceling an intelligence-sharing pact with Japan amid a bitter trade dispute with its Asian neighbor. (Bae Jae-manYonhap via AP)

FILE - In this Aug. 2, 2019, file photo, a woman walks past an advertisement featuring Japanese and South Korean flags at a shop in Shin Okubo area in Tokyo. South Korea says it is canceling an intelligence-sharing pact with Japan amid a bitter trade dispute with its Asian neighbor. (AP PhotoEugene Hoshiko, File)

FILE - In this Aug. 2, 2019, file photo, a woman walks past an advertisement featuring Japanese and South Korean flags at a shop in Shin Okubo area in Tokyo. South Korea says it is canceling an intelligence-sharing pact with Japan amid a bitter trade dispute with its Asian neighbor. (AP PhotoEugene Hoshiko, File)