The dispute between Russian Federation and Japan centres on four islands in the strategically-located Kuril chain which the Soviet Union occupied at the end of war in 1945 but are claimed by Japan.
"Let's conclude a peace treaty before the end of this year, without any pre-conditions".
While Moscow has said the drills will not take place on the contested islands, Abe told Putin that Japan is "keeping a close eye on" them, according to Deputy Chief Cabinet Secretary Kotaro Nogami quoted by Kyodo.
With kitchen aprons on, Putin and Xi fried traditional Russian pancakes - also known as bliny - and tried them with seafood delicacies including red and black caviar.
Japan and the Soviet Union signed a joint declaration aimed at ending wartime hostilities and restoring diplomatic ties in 1956.
The Russian president said the two countries want to flesh out key areas of cooperation, such as gas pipelines and rail connections via North Korea - long-debated projects which do not, as yet, appear politically feasible - as well as initiatives in shipbuilding, agriculture and power generation.
Investors in the new entity include Russia's sovereign wealth fund, which is acquiring a 13% stake in the JV.
Earlier, Putin said security in the region was a key issue and that Russian Federation was concerned by a move to establish a USA missile defence system there.
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"We have been trying to solve the territorial dispute for 70 years".
Observers say that his visit is part of a fresh round of New Delhi's engagement with Moscow, which will culminate in October when Prime Minister Narendra Modi will host Mr. Putin for the India-Russia annual summit.
"This is called trolling".
The Russian leader said he wanted to clinch the peace treaty first and then continue to discuss the territorial issue with Abe as "friends", during a question and answer session of the forum's plenary meeting.
A Japanese government spokesman said the country's stance had not changed.
The quest for the return of the islands is an emotive issue in Japan, and Kunadze suggested that Abe would never accept a deal that would be political suicide.
Japan's Chief Cabinet Secretary Yoshihide Suga said a treaty with Russian Federation would be signed "after resolving the issue of the attribution of the Four Northern Islands", referring to the disputed territory.
Experts have to "conduct a thorough study of the possible economic output" of the project, Abe said.