TOKYO (AFP) - A Tokyo court has ruled that an obscure Mongolian company cannot buy the building serving as North Korea's de facto embassy in Japan, reports said Thursday, meaning it could go up for sale for a third time.

The Mongolian-registered Avar Limited Liability Company won an auction in October when it bid 5.01 billion yen (S$61.5 million) for the building and the site.

But Tokyo District Court has reportedly conducted an investigation into the company to determine whether it qualifies as a legitimate bidder for the prime real estate.

The property is currently used by Chongryon, the organisation that represents North Korean interests in Japan in the absence of diplomatic ties.

The site - a 2,390 sq m plot and 10-storey building - was put up for auction after it was seized by authorities over unpaid debts.

Japan's Civil Execution Act bars the organisation being forced to sell assets from taking part in an auction of them. But it is unclear whether Avar Limited is linked to North Korea, Jiji Press said.

The firm has paid no tax to Mongolian authorities since its establishment a year ago and has no record of real business activities there, the agency said.

The company can file a complaint over the court decision within a week. If it that complaint is unsuccessful the auction will have to be held again.

The estate was initially auctioned in March last year, with a Japanese Buddhist temple coming out on top. But it failed to make good on its 4.52 billion-yen winning bid.

Chongryon on Thursday said it knew about the court decision only through media reports and declined to comment.

Hundreds of thousands of ethnic Koreans live in Japan, mostly a legacy of those who emigrated or were forced to move to Japan during its 1910-1945 colonial rule of the Korean peninsula.

About 10 per cent are believed to be affiliated with Chongryon, which charges that the community is persecuted by authorities and harassed by right-wing activists.