Prime Minister Junichiro Koizumi pledged Monday to provide 500 million yen in grants in aid to East Timor to help its nation-building efforts.

Koizumi announced the plan during a meeting with East Timor President Xanana Gusmao at his office in Tokyo. He said the government will approve the financial aid as early as this week.

Japan is the largest donor to East Timor, which won independence from Indonesia in 2002. It has already promised $190 million in aid, dispatched Self-Defense Forces engineering units to repair roads and bridges necessary for U.N. peacekeeping operations there, and supported programs to promote the social rehabilitation of former militia members and reconciliation between warring parties.

Gusmao expressed gratitude for Japan's help and asked for further cooperation, particularly with the building of infrastructure, which he said is vital to bolster the level of production necessary for national development.

Earlier in the day, Gusmao told reporters at the Japan National Press Club that his country, although politically independent, faces many challenges and is in need of international help with its judicial system and employment.

He said the security situation remains volatile despite a U.N. decision last week to withdraw many of its peacekeepers.

East Timor gained independence in May 2002 after 400 years of Portuguese colonial rule and a quarter-century of Indonesian occupation.