Soviet forces occupied the islands at the end of World War II, and the territorial dispute has prevented Moscow and Tokyo from formally ending hostilities in the war. "We have been negotiating for 70 years", Putin said.
Chinese President Xi Jinping arrived on Tuesday in Vladivostok - a coastal city in Russia's resource-rich "far east" - to discuss plans with his Russian counterpart Vladimir Putin for developing the region.
"There are deep and complex changes underway in the global situation, the politics of force, unilateral approaches and protectionism are rearing their head", Xi told the Eastern Economic Forum (EEF) on Wednesday. "Let's conclude a peace agreement, not now but by year's end without any preconditions", Putin said, with the audience breaking into applause.
The proposal means that resolving the bilateral issue on the northern territories would effectively be put aside and a conclusion of the peace treaty would happen first.
In his remarks on September 12, Putin said concluding a pact would create a better atmosphere and enable Russian Federation and Japan to "continue to resolve all outstanding issues like friends".
Prime Minister Abe has mounted a serious diplomatic initiative to have the Kuril Islands returned to Japanese sovereignty.
During the talks in Vladivostok on Wednesday, Putin and Abe discussed the idea of building a railway bridge from Sakhalin to mainland Russian Federation, which could later be extended to the Kuril Islands and Japan. "We are both fully aware that it will not be easy".
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.
Evacuations in United States ahead of Hurricane Florence
The hurricane centre said Florence will approach the coast Friday and linger for a while before rolling ashore. Up to 1.7 million people have been ordered to evacuate across South Carolina , North Carolina and Virginia .
"This stance hasn't changed", he added.
On Monday, Mr Putin seemed to pour cold water on suggestions that the dispute could be resolved soon.
Japanese Prime Minister Shinzo Abe appeared open to a treaty, saying it was "not normal" that one still hasn't been signed after seven decades.
Some diplomats and analysts have taken Putin's proposal with a grain of salt.
Still, a former Russian Deputy Foreign Minister, Georgy Kunadze, felt this could be political posturing from Putin.
"This is called trolling".
In Moscow, Deputy Foreign Minister Igor Morgulov told Russian news agencies that Putin's announcement would not require any changes to the current format of negotiations.