Sales of Japanese-brand cars in South Korea slumped in July amid a worsening diplomatic row between the two countries that has led to consumer boycotts and efforts by Seoul to cut the economy's reliance on imports from Japan, a media report said.

According to Reuters, Toyota sales in South Korea tumbled 32% year on year while Honda's were off 34%.

Although automakers are still assessing the main factors driving the declines last month, industry participants and analysts expect an intensifying boycott campaign to hurt demand further, as diplomatic tensions grow, the report said.

Japan tightened controls in July on exports to South Korea, escalating a row over wartime forced laborers and sparking a boycott by South Korean consumers of Japanese products and services, from cars, beer and pens to tours.

On Friday, Japan escalated tensions by removing South Korea from a list of export destinations approved for fast-track status.

"Showroom visits are declining while consumers are holding off on signing contracts," a Honda Korea official told Reuters.

South Korean representatives for Honda and Toyota did not provide any commentary on the sales trends and said they would need to assess the reasons for the decline.

However, industry watchers said public sentiment was a factor behind the sharp falls.

"The South Korean public is angry about Japan…It will soon become a taboo to drive Japanese cars in Korea," Kim Pil-soo, an automotive engineering professor at Daelim University College, told Reuters.

Data from the Korea Automobile Importers & Distributors Association (KAIDA) also showed sales by Lexus, Toyota's luxury badge and the third-most imported brand into South Korea after Mercedes and BMW, down 25% from the previous month, although they were still up 33% from the previous year.

Reuters said Japanese officials have cited unspecified security reasons for the export curbs to South Korea. But they have also pointed to an erosion of trust after South Korean court rulings last year ordered Japanese firms to compensate wartime forced laborers, a matter Tokyo says was settled by a 1965 treaty normalising bilateral ties.

Earlier on Monday, South Korea's government announced plans to invest about KRW7.8 trillion (US$6.48bn) in research and development for local materials, parts and equipment over the next seven years to help cut reliance on Japanese imports.

South Korea plans to improve economic "self-sufficiency" in regards to the production of 100 key components, materials and equipment items used to make chips, displays, batteries, automobiles and other products. The government aims to stabilise supply of these items over the next five years.