In a move likely to reignite a feud over the so-called "comfort women", Japan's chief government spokesman Yoshihide Suga also announced that Japan is ordering home its consul-general in Busan and suspending discussions over a Japan-South Korea currency swap.
"Japan and South Korea are neighbours," Suga said. "It's a very important country. It's extremely regrettable we had to take this action."
"The Japanese government will continue to strongly urge the South Korean government as well as municipalities concerned to quickly remove the statue of the girl," he added.
Mainstream historians say up to 200,000 women, mostly from Korea but also other parts of Asia including China, were forced to work in Japanese military brothels during World War II.
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The plight of the women is a hugely emotional issue that has marred relations between the two Asian neighbours for decades and which, for many South Koreans, symbolises the abuses of Japan's 1910-45 colonial rule over the Korean peninsula.
The statue is a copy of one that sits across the road from the Japanese embassy in Seoul and that for more than five years has been a rallying point for supporters of the few surviving South Korean former sex slaves.
The statue in Busan was initially removed by local authorities after South Korean activists placed it in front of the Japanese consulate in the southern port city last week.
But they did not stop it being put back after Japan's hawkish defence minister Tomomi Inada offered prayers at a controversial war shrine in Tokyo the next day.
Suga, however, made no mention of Inada's visit to the shrine, which honours millions of mostly Japanese war dead - but also senior military and political figures convicted of war crimes. Her visit drew harsh criticism in South Korea as well as China.
'Very regrettable'
South Korean Foreign Ministry Spokesman Cho June-Hyuck lamented Japan's actions as "very regrettable", but struck a conciliatory note.
"Even if there exist difficult issues, the government emphasises again that it will continue developing South Korea-Japan relations based on trust between the two governments," he said.
However, later in the day South Korean Foreign Minister Yun Byung-Se summoned the Japanese ambassador.
Activists had first placed the new statue outside the consulate to mark their opposition to a South Korea-Japan agreement reached a year ago to finally resolve the "comfort women" issue.
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Under that accord, which both countries described as "final and irreversible," Japan offered an apology and a one-billion yen ($8.6 million) payment to surviving Korean comfort women.
But critics said the deal did not go far enough in holding Japan responsible for wartime abuses.
The statue in Seoul - a bronze of a young woman seated with a small bird on her shoulder - has proved a popular symbol.
Japan says it should have been removed after the comfort-women accord was signed, but Seoul argued it had only agreed to look into the possibility of moving it.
'Comfort women': Some questions and answers
Tensions between Japan and South Korea spiked on Friday when Tokyo recalled its ambassador over a statue of a "comfort woman".
The move marks the latest development in an ulcerative dispute over Japan's wartime system of sex slavery that has roiled relations for decades.
Here are some key questions about the issue:
Who are the "comfort women"?
The term, a euphemism for sex slaves, refers to women and young girls mostly from the Korean peninsula, China, the Philippines and what is now Indonesia, who were taken to former Japanese military installations and forced to provide sex to officers and soldiers during World War II.
Up to 200,000 women are believed to have been sexually enslaved by Japan during the war, though estimates range higher and lower. Few survive 70 years after the end of the war.
The issue has long stood in the way of better ties between Japan and neighbouring countries, particularly South Korea and China.
It has also proven a diplomatic headache for the United States, which wants to strengthen security cooperation between Tokyo and Seoul.
Why does the issue still resonate?
A majority of Japanese feel they have atoned enough for the country's wartime aggression and other wrongdoing, including the comfort women issue, after numerous apologies.
But many South Koreans and Chinese question the sincerity of the apologies and point to statements and actions by Japanese leaders -- including the visit late last month to a war shrine in Tokyo by Japan's hawkish defence minister.
What's been done to resolve the issue?
At the end of 2015, Japan announced it was offering a one-billion yen ($8.6 million) payment for survivors and an apology from nationalist Prime Minister Shinzo Abe.
Both sides agreed that this represented a "final and irreversible," settlement. But some activists in South Korea dispute this and demand a more fullsome apology and greater compensation.
Why has it flared up again now?
Campaigners installed a bronze statue of a "comfort woman" outside the Japanese consulate in Busan, a copy of one that sits outside their Seoul embassy , but it was removed after the governments reached their settlement.
But after the Japanese defence minister paid homage at Yasukuni Shrine last month, a spot where senior convicted war criminals are honoured, Seoul allowed the activists to put the statue back up.
Japan withdrew its envoy on Friday in protest at this move.
