The Soviet Union and Japan remained at loggerheads Tuesday in efforts to improve four decades of chilly relations, with Tokyo sticking to demands for the return of Soviet-held islands in exchange for boosting trade.

Soviet Foreign Minister Eduard Shevardnadze and his Japanese counterpart, Sosuke Uno, held "frank, serious and heated discussions" on the territorial dispute during their third and final scheduled round of talks, the Foreign Ministry said."I can hardly say that either side showed any concessions. The two sides remain far apart," the ministry spokesman said.

The spokesman said officials from both sides will work through the night to prepare a final communique, and that "a very heated argument is expected."

The four Soviet-held islands - just off the eastern coast of Japan's northernmost main island of Hokkaido and fortified by Soviet troops and MiG fighters - have been the major stumbling block to a peace treaty between the neighbors. Although Japan and the Soviet Union normalized relations in 1956, they have never formally ended hostilities from World War II.

Japan has steadfastly maintained that the return of the islands, occupied by the Soviet Union just after World War II, is a precondition to signing a peace treaty and improving political and economic ties.

Shevardnadze, who will end his four-day visit with a news conference Wednesday morning, told Prime Minister Noboru Takeshita in a one-hour meeting that Soviet President Mikhail Gorbachev wants to visit Japan.

But the Foreign Ministry spokesman noted that Gorbachev made a similar pledge to visit Japan two years ago and there was no indication that such a trip would occur anytime soon.

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