As Seoul had announced, a new ranking scheme for South Korea's trade partners came into force, classifying nations into three categories instead of the earlier two.
Japan was moved from the first group, reserved for preferred partners, to the second.
The third group is reserved for those partners who have an export control system that violates international regulations and does not cooperate with the international community to resolve the situation, according to the Ministry of Trade, Industry and Energy.
Japan is currently the only country left in the second group, which implies greater bureaucratic hurdles for shipment of goods than it had previously, according to Efe news.
For example, domestic companies exporting strategic goods to the archipelago will now have to submit five documents instead of three to get clearance from South Korea's customs, lengthening the bureaucratic process from five to about 15 days on average.
In Tokyo, Japan's Chief Cabinet Secretary Yoshihide Suga said the measure was "extremely regrettable" and asked Seoul to explain the reasons for its decision.
Seoul's decision comes after Tokyo imposed restrictions on the export of basic chemicals used for manufacturing electronic screens and memory chips to the neighbouring country in July, and removed South Korea from its list of preferred trading partners in August.
Japan argued that the measure was in response to alleged laxity in South Korea's control mechanisms of these materials, making it possible for them to be used for military purposes.
However, Seoul believes that the measure is in response to the rulings in 2018 by several South Korean courts - including the Supreme Court - asking Japanese companies to pay compensation to Korean citizens who were forced to work for them during World War II.
Japan maintains that all compensation for victims enslaved by Japanese companies was settled during the 1965 Treaty on Basic Relations.
( With inputs from IANS )