The cut in grants by one of the Asian regions most influential players followed the EU's decision to toughen sanctions, and signals from the US that it will shortly stiffen its measures against the junta's leadership.
Japan, once Burma's largest aid donor, said it had decided to cut funding in response to international outrage over the crackdown. It hoped the move would encourage the regime to change course and move towards democracy.
Tokyo had been considering its course of action since the killing of a Japanese video journalist, Kenji Nagai, at the height of the protests. Film of the killing appeared to show him being shot at close range by a soldier.
Japan's foreign minister, Masahiko Komura, said Japan was cancelling a £2.3m grant it had been discussing with the Burmese regime for a business education centre at Rangoon's university.
'The Japanese government needs to show our stance," the minister said. "We cannot take action that would effectively support the military regime at this moment."
The funding cut represents only a small proportion of the £13m in humanitarian aid the Japanese government gave to the regime last year, but the minister said further grants would be reviewed on a case-by-case basis in future.
Japan, which until 1998 was Burma's largest donor, remains one of the pariah nation's biggest humanitarian aid backers. But it suspended low-interest loans for big infrastructure projects in 2003 in protest at the rearrest of the opposition leader, Aung San Suu Kyi, who has been detained for 12 of the last 18 years.
The significance of today's move is that Japan, unlike the EU and US, has largely stuck by the generals over the years, refraining from imposing sanctions.
The shift sends a strong symbolic message to the Burmese leadership, and may yet encourage countries of the neighbouring Association of South-East Asian Nations, which numbers Burma among its members and opposes sanctions, to adopt a stronger stance.
The Thai prime minister, Surayud Chulanont, proposed a UN-backed regional forum on Burma, bringing south-east Asia together with India and China, the two countries with the greatest potential influence on the junta.
