The two leaders ate pancakes with caviar and had shots of vodka at an exhibition at the sidelines of an economic forum in the far eastern port of Vladivostok.
The Soviet Union seized the four islands north of Hokkaido and east of Sakhalin in the closing days of World War II. "Shinzo said let's change approaches".
During a speech at the Easterm Economic Forum in Vladivostok, Russia, Chinese President Xi Jinping said Beijing's relationship with Russia is at an "all time high" as he called for further investments in Russia.
"However, our position that the Northern Territories issue is resolved before any peace treaty remains unchanged".More news: 'Forza Horizon 4' Goes Gold, Demo Now Live
In a sudden about turn, Russia's President suggested that a historic peace deal "without any preconditions" could be signed by the end of the year.
Putin said the conclusion of such a deal would create a better atmosphere and allow Russian Federation and Japan to "continue to solve all outstanding issues like friends".
"If North Korea does something toward denuclearization it expects reciprocal steps and not endless demands for full disarmament", said Putin.
Analysts say that presence of the two leaders who have arrived from Tokyo and Seoul demonstrates the interest of key countries of the Asia-Pacific in realising Mr. Putin's ambitious regional plan, which has China and other countries, including India, as possible partners.More news: Google, Facebook, Twitter face European Union fines over extremist posts
Kremlin spokesman Dmitry Peskov said Japanese officials had not communicated any response in private immediately after the session, Russia's TASS news agency reported.
A former Russian deputy foreign minister, Georgy Kunadze, said he doubted Putin wanted to solve the territorial problem in earnest.
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.
Alexander Gabuev, head of the Russian Federation in the Asia-Pacific programme at the Carnegie Moscow Centre, suggested Putin's seemingly off-the-cuff proposal was a sign of frustration at the dearth of Japanese investment.More news: Russian Federation prepares for biggest war games in its history