The euro zone has made much progress in battling its three-year old debt crisis with the tough reforms taken by hardest-hit countries particularly encouraging and it needs to keep up the momentum, Japan's top financial diplomat said on Wednesday.

He also made conciliatory comments towards China over the dispute between the two countries over sovereignty of a small group of islands that has raised tensions between the two countries.

Takehiko Nakao, vice finance minister for international affairs, told Reuters in an interview that Japan will urge Europe to sustain the pace at a Group of Seven finance chiefs' meeting and annual IMF and World Bank gatherings in Tokyo next week.

Japan has repeatedly voiced concern over the pace and scope of Europe's efforts, worried that the prolonged turmoil was boosting the safe-haven appeal of the yen and driving it to heights that the country's exporters struggled to cope with.

Nakao said the euro crisis remained one of the top challenges for the international community, but also struck a positive note.