The deal slashing more than 90 per cent of tariffs had been in doubt for months due to Japan's uneasiness over the military takeover and street protests by activists in Bangkok.

 Easing the kingdom's isolation, Thailand's army-installed Prime Minister Surayud Chulanont paid his first visit to a Group of Eight nation since the coup to sign the deal with his counterpart Shinzo Abe.

 "For Thailand, our relations with Japan are of the greatest strategic importance," Surayud said.

 Surayud hopes the pact with Thailand's largest investor will ease worries in the business community about the junta's protectionist policies. The deal exempts Japan's existing investments from new currency controls that briefly sent the Bangkok market into a tailspin in December.

 But hours before the signing, demonstrators burned a mock free-trade agreement in front of the Japanese embassy in Bangkok, holding a banner that said, "Free Trade Agreement with Japan is horrible. It only benefits Japan."

 The agreement was negotiated by Thailand's elected prime minister Thaksin Shinawatra, whom the army ousted in September, accusing him of corruption.

 Free-trade negotiations between Thailand and the United States have stalled since the coup and Surayud has yet to visit any Western countries as premier.

 But Japan has historic political and economic ties with Thailand, with many Japanese firms using Bangkok as a regional hub.

 Surayud acknowledged that Tokyo still had concern about the coup but said he was committed to holding elections by the end of the year.

 He insisted he was not a military ruler and that he was in charge. Last week he publicly rejected a call by the coup leader, General Sonthi Boonyaratglin, to extend emergency rule in Bangkok to curb swelling anti-junta protests.

 "I'm the one who calls the shots. That I can say. If not, I'm not going to be in this position," Surayud, a retired general, told a news conference.

 Japan said it was not ignoring concerns. A foreign ministry official said ahead of the summit that Abe would likely call "an early return to normal democracy" during talks with Surayud.

 Under the agreement, about 97 per cent of Japanese exports to Thailand and 92 per cent of Thai exports to Japan will be tariff-free within 10 years.

 Tokyo will scrap tariffs on Thai shrimp and tropical fruit such as mangoes and durian, although it will keep protecting Japan's politically powerful rice farmers.

 Thailand will cut tariffs on automobiles with engines of 3000 cc or larger to 60 per cent from 80 per cent over four years and eventually scrap all tariffs on steel imports.

 Thailand is trying to transform itself into the "Detroit of the East" and has become a major construction hub for Japanese automakers.

 But activists -- some of whom were part of protests against Thaksin before his ouster -- say the free-trade deal will turn Thailand into a dumping ground for Japan's toxic waste.

 "Concerns by anti-globalisation activists are not legitimate as both Japan and Thailand are signature countries of the Basel Convention which controls movement of hazardous wastes," the Japanese foreign ministry official said.

 Japan, the world's second largest economy, has been seeking a growing number of bilateral free-trade deals amid the breakdown in global liberalisation talks. It has already inked trade pacts with Thailand's neighbour Malaysia as well as Singapore and the Philippines.

Agence France Presse