China on Thursday released a seized Japanese ship after its owner paid $28 million in compensation, a court said, in a business dispute dating to the 1930s which underlines tensions between the countries.

The Shanghai Maritime Court announced Saturday it had impounded a large freight vessel owned by Mitsui O.S.K. Lines in accordance with the law, as the Japanese company had failed to pay a Chinese firm.

But the case had political overtones given uneasy ties between the two Asian giants, which are locked in a territorial dispute over islands in the East China Sea.

"The court has delivered a ruling at 8:30 am on April 24, 2014, to lift the detention of the Baosteel Emotion ship," the court said in a statement.

Mitsui had "fulfilled its obligations" by paying compensation and additional court costs of around $390,000, the court said. It did not name the Chinese party awarded the compensation.

Japan had lodged a formal diplomatic protest over the seizure and warned it could "intimidate Japanese companies doing business in China".

Japanese media suggested the seizure of the ship was meant to underline China's growing assertiveness before U.S. President Barack Obama's arrival in Tokyo on Wednesday on the first leg of an Asian tour.

Tokyo believes that the seizure undermines a 1972 joint communique that normalized ties between Japan and China, in which Beijing agreed to renounce any demands for war reparations.

China replied that the case was a civil matter and had nothing to do with war reparations.

The ship seizure comes as a set of lawsuits related to wartime forced labor have also been filed in China against Japanese corporations.

Mitsui's predecessor chartered two ships from a company called Chung Wei, now referred to by mainland China as Zhongwei, in 1936.

The ships were reportedly commandeered by the Imperial Japanese Navy and were sunk during World War II, media reports said.

A compensation suit was brought against Mitsui by the descendants of the founder of the Chinese company, and in 2007 a Shanghai court ordered Mitsui to pay compensation.

Mitsui said in a statement on Monday that it had been seeking an out-of-court settlement after China's supreme court rejected its appeal in 2011, but the vessel was "suddenly" impounded.

The ship was expected to depart China later on Thursday, Japan's Kyodo news agency said.

The Baosteel Emotion, designed to carry ore, was docked at Majishan island off Shanghai, according to Chinese media reports.