"We've been holding talks for 70 years", Putin said at the Eastern Economic Forum in the Russian city of Vladivostok.
"However, our position that the Northern Territories issue is resolved before any peace treaty remains unchanged".
"The government will continue its negotiations on the basic principle that we will sign a peace treaty after resolving the issue of the attribution of the four Northern Islands", Chief Cabinet Secretary Yoshihide Suga told reporters.
Russian President Vladimir Putin made a surprise proposal to Japanese Prime Minister Shinzo Abe on Wednesday, saying that their countries should conclude a post-World War II peace treaty "without any preconditions" by the end of the year.
Later in the same session, Putin said of his offer: "I was not joking".
The islands of Etorofu, Kunashiri, Shikotan and the Habomai islet group, called the Northern Territories in Japan and the Southern Kurils in Russian Federation, were seized by the Soviet Union after Japan surrendered in World War II in August 1945.
Putin and Xi also pledged to broaden the scope of cooperation in all areas, including investment, energy and finance.
Xi thanked the Russian staff at the center for helping Chinese children recuperate and encouraged the young people of the two countries to serve as the pillars of their countries and envoys of bilateral friendship and carry forward China-Russia friendship from generation to generation.
Xi and Putin had their third meeting in four months, charting the future course of the China-Russia comprehensive strategic partnership of coordination and exchanging views on major worldwide and regional issues, Wang said. "Putin does not expect anything", Kunadze told the Echo of Moscow radio station.
Putin said the conclusion of such a deal would create a better atmosphere and allow Russian Federation and Japan to "continue to solve all outstanding issues like friends".
Russian Federation calls the islands the Kurils, while Japan calls them the Northern Territories.
Prime Minister Abe has mounted a serious diplomatic initiative to have the Kuril Islands returned to Japanese sovereignty. "We have been negotiating for 70 years", Mr Putin said.