(Recasts with Blue House announcement)
By Hyonhee Shin and Chang-Ran Kim
SEOUL/TOKYO, July 19 (Reuters) - South Korean President Moon Jae-in will not visit Tokyo for the upcoming Olympics, his office said on Monday, scrapping plans for what would have been his first summit with Prime Minister Yoshihide Suga.
The announcement came after Seoul lodged a protest over a news report on Friday that a senior diplomat at Japan's embassy in Seoul had said Moon was "masturbating" when describing his efforts to improve relations between the two countries.
"President Moon has decided not to visit Japan," Moon's press secretary Park Soo-hyun told a briefing. "As the Tokyo Olympics is a peaceful festival for all people around the world, we hope that Japan will host it safely and successfully."
The latest uproar further inflamed relations between the two nations feuding over territorial claims and their wartime history, dashing any remaining hopes that the Tokyo Games might offer a fresh start for bilateral and regional cooperation.
Japan's Yomiuri newspaper earlier on Monday reported Moon would meet Suga in Tokyo on Friday, in time for the start of the Olympics. But both governments quickly denied a meeting had been finalised, with Moon's office citing an "last minute obstacle."
Suga and Moon were planning to discuss issues that have strained relations over generations, including compensation for Koreans forced to work in Japanese firms and military brothels during Japan's 1910-1945 colonial rule, the Yomiuri report said.
Japan was also planning to replace the Seoul-based diplomat after his reported comments about Moon, the newspaper said.
Japan's top government spokesperson said the ambassador cautioned his deputy over reported remarks.
"The remarks were inappropriate as a diplomat, and we think it is very regrettable," Chief Cabinet Secretary Katsunobu Kato told a regular briefing.
Asked about the report about the diplomat's removal, Kato said it was a matter for the foreign minister and did not provide further details.
A summit between the two leaders had not been decided but if Moon decided to visit, Japan would accommodate him, Kato added.
South Korea's vice foreign minister, Choi Jong-kun, summoned Japan's Ambassador Koichi Aiboshi on Saturday to protest.
"He also demanded the Japanese government to promptly take tangible and due steps to prevent a recurrence of such situation," the foreign ministry said in a statement.
Suga this month called relations between Japan and South Korea "very difficult", adding that it was up to Seoul to address the problems.
Moon had earlier hoped the Olympics may offer an opportunity for North and South Korea to improve relations and revive peace talks, before Pyongyang announced it would not take part because of coronavirus concerns. (Reporting by Chang-Ran Kim, Ju-min Park in Tokyo, Hyonhee Shin, Sangmi Cha and Jack Kim in Seoul; Editing by William Mallard, Gerry Doyle, Lincoln Feast and Tomasz Janowski)
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