The issue has been the key cause for strained ties. South Korea has demanded stronger apologies and compensation.
Only 46 former "comfort women" are still alive in South Korea.
The announcement came after Japan's foreign minister Fumio Kishida arrived in Seoul for discussions with his counterpart Yun Byung-se, following moves to speed up talks.
Up to 200,000 women were estimated to have been forced to be sex slaves for Japanese soldiers during WW2, many of them Korean. Other women came from China, the Philippines, Indonesia and Taiwan.
- Japan will give 1bn yen to a fund for the elderly comfort women, which the South Korean government will administer
- The money also comes with an apology by Japan's prime minister and the acceptance of "deep responsibility" for the issue
- South Korea says it will consider the matter resolved "finally and irreversibly" if Japan fulfils its promises
- South Korea will also look into removing a statue symbolising comfort women, which activists erected outside the Japanese embassy in Seoul in 2011
- Both sides have agreed to refrain from criticising each other on this issue in the international community After the meeting Mr Kishida told reporters that Japan's Prime Minister Shinzo Abe offered a heartfelt apology."Prime Minister Abe expresses anew his most sincere apologies and remorse to all the women who underwent immeasurable and painful experiences and suffered incurable physical and psychological wounds as comfort women," Mr Kishida saidThe wording of the deal does not explicitly state that the "comfort women" will receive direct compensation, but states that the fund will provide "support" and bankroll "projects for recovering the honour and dignity and healing the psychological wounds" Some former "comfort women", such as Lee Yong-soo, have taken issue with this. The 88-year-old told the BBC: "I wonder whether the talks took place with the victims really in mind. We're not after the money. If the Japanese committed their sins, they should offer direct official government compensation."
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