The proposal means that resolving the bilateral issue on the northern territories would effectively be put aside and a conclusion of the peace treaty would happen first.
"It would be naive to think that it can be solved quickly", Putin said after meeting Abe on the sidelines of the forum.
Russian President Vladimir Putin turned to Japanese Prime Minister Shinzo Abe on a conference stage on Wednesday and offered to sign a peace deal to end a decades-old territorial dispute by the end of the year.
Putin and Xi also pledged to broaden the scope of cooperation in all areas, including investment, energy and finance.
It has kept the two countries from signing a peace accord that would formally end their wartime hostilities.
Speaking before Putin, Abe asserted that Japan and Russian Federation "have a duty to future generations" regarding the islands dispute.
Russian commentator Georgy Kunadze, a former deputy foreign minister, told Ekho Moskvy radio that he believes Putin was "trolling" Abe and "does not expect anything" to result from the proposal.
FILE PHOTO: Japan Coast Guard vessel PS08 Kariba sails off Cape Nosappu, easternmost point in Japan, in Nemuro on Hokkaido island, as part of a group of islands known as the Northern Territories in Japan and the Southern Kuriles in Russian Federation can be seen in the background April 14, 2017.
Relations between China and Japan soured in 2012 over a territorial dispute over several tiny islands in the East China Sea.
"Japan and Russian Federation - both President Putin and myself - share the same position and determination to solve our territorial disputes", he said.
"This stance hasn't changed", he added.
The quest for the return of the islands is an emotive issue in Japan, and Kunadze suggested that Abe would never accept a deal that would be political suicide.
"It seems that this would facilitate the solution of all problems which we have not been able to solve during the past 70 years", Putin added.
Shinzo Abe confirmed Wednesday his plans to visit China this year in what would be the first trip to the country by a Japanese prime minister since 2011, the latest sign of warmer ties between the two rivals.
The Soviet Union seized the four islands north of Hokkaido and east of Sakhalin in the closing days of World War II.
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