The UN nuclear watchdog on Thursday urged Japan to consider "controlled discharges" into the sea of contaminated water used to cool the crippled reactors at Fukushima.

The proposal was among recommendations outlined in a report by the International Atomic Energy Agency after its latest inspection of the worst nuclear accident in a generation.

"The IAEA team believes it is necessary to find a sustainable solution to the problem of managing contaminated water," the 72-page report said.

"This would require considering all options, including the possible resumption of controlled discharges to the sea."

Dealing with radiation-tainted water has been one of the most contentious issues arising from the accident as the plant's embattled operator, Tokyo Electric Power (TEPCO), struggles to store vast amounts of sea water used to cool the reactors.

The IAEA report warned that the vast utility must assess potential dangers of releasing contaminated water, and win approval from local communities wary of atomic power.

"TEPCO is advised to perform an assessment of the potential radiological impact to the population and the environment arising from the release of water containing tritium and any other residual radionuclides to the sea," the review said.

"It is clear that final decision making will require engaging all stakeholders, including TEPCO," and nuclear authorities, central and regional governments and local communities, it said.

The water is currently stored in huge tanks at the plant, but there is no permanent solution and TEPCO has warned it is running out of space.

Most experts agree that it will eventually have to be released into the ocean after being scoured of its most harmful contaminants, but local fishermen, neighbouring countries and environmental groups all oppose the idea.

The 19-strong IAEA mission was in Japan in December to examine the company's efforts to contain the site, where reactors were went into meltdown after a huge quake-sparked tsunami crashed ashore in March 2011.

Its review looked at dangerous work faced by plant workers such as removing nuclear fuel assemblies from reactors, and a future clean up of radioactive debris.

In November, TEPCO began removing fuel rods from a storage pool -- the trickiest process since the runaway reactor cores were brought under control over two years ago.

The agency also called for a careful assessment of the company's plan to create a subterranean "freeze wall" to prevent radioactive groundwater from leaking into the ocean -- an ongoing problem that has stoked fears about dangers posed to marine life and the food chain.

The roadmap towards decommissioning the Fukushima plant envisages a process that is likely to last three or four decades.