Japan relaxed Tuesday its self-imposed decades-old ban on military equipment exports, Kyodo news agency reported, in a move that will open up new markets to its defence contractors and help the nation squeeze out more out of its defence budget.

Kyodo said the government's security council agreed to the relaxing of the ban to allow Japan take part in joint development and production of arms with other countries and supply military equipment for humanitarian missions.

The rule adopted in 1967 banned sales to communist countries, those involved in international conflicts or subject to United Nations sanctions.

It later became a blanket ban on exports and on the development and production of weapons with countries other than the United States, making it impossible for manufacturers to participate in multinational projects.

The move could allow companies such as Mitsubishi Heavy to join the development of Lockheed Martin's F-35 which Tokyo picked last week as its next frontline fighter, planning to buy 42 machines at an estimated cost of more than $7 billion.

Although Japan is the world's sixth-biggest military spender, it often pays more than double other nations for the same equipment because local export-restricted manufacturers can only fill small orders at a high cost.

Removing the ban would stretch its defence purse further as military spending in neighbouring China expands.

This year, Beijing raised military outlays by 12.7 percent. That included money for its own stealth fighter, the J-20, which made its maiden flight in January.

In contrast, Japan's defence budget has been shrinking from year to year in past years as ballooning costs of social security and servicing its growing debt pile squeeze other spending.

Given fiscal restraints, Tokyo is keen to make its defence program more efficient to maintain its military capability in the face of China's nascent and growing uncertainties in the region.

The relaxation of the ban, that has been modified in the past to allow sharing of military technology with the United States, could also be a boon for Japanese manufacturers -- the strong yen weighing on their civilian exports and weak domestic demand and budget constraints restricting growth at home.

(Reporting by Shinichi Saoshiro; Writing by Tomasz Janowski)