TOKYO -- Japan agreed Friday to lend China 62.3 billion yen (US$532.5 million) in aid that could help warm relations between the Asian powers.

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The package represents a 17 percent drop from the 74.8 billion yen offered a year earlier, but comes after aid was suspended in March 2006 amid friction over wartime history and natural resources. Aid was unfrozen only in June.

The money will be spent on seven water and environmental projects in several Chinese regions, including Sichuan, Yunan and Inner Mongolia, Japan's Foreign Ministry said in a statement. Japan and China signed the agreement in Beijing, the statement said.

The aid is retroactive for Japan's fiscal year 2006, which ends Saturday.

Prime Minister Shinzo Abe has made improving strained relations with China a top priority, and visited Beijing shortly after taking office in September.

The low-interest loans date back to 1979, seven years after China and Japan established diplomatic relations.

But tensions over Japanese textbooks that China says downplay Tokyo's World War II aggression, as well as a dispute over undersea gas and oil reserves, led Japan to suspend the aid, amid calls that China, with its robust economic growth, no longer needs it.

Japan plans to terminate the aid loans to China by 2008, when Beijing hosts the Summer Olympics.

Japanese aid to China has dropped 71 percent from its high point in 2000, as Japan battled to revive its own economy.