The IWC forced a commercial moratorium in the 1980s due to a dwindling whale population.
"Japan is a valued supporter of the worldwide rules-based system and we had hoped Japan would choose to stay in the commission", Peters said.
However, activist groups slammed the decision, with Greenpeace calling it a "sneaky" announcement.
Sam Annesley, head of Greenpeace Japan, said the Japanese announcement was, in his words, "out of step with the global community".
The announcement was not surprising, as it comes after the IWC declined Japan's request to allow its fishermen to hunt minke and other whales protected by the organization.
Japan joins Iceland and Norway in openly defying the IWC's ban on commercial whale hunting, and its decision sparked worldwide criticism. "Their decision to withdraw is regrettable and Australia urges Japan to return to the Convention and Commission as a matter of priority", the statement read.
Two countries including Canada and Iceland have withdrawn from the worldwide bod, with the latter re-joining in 2003 after leaving in 1992.
"Consequently, Japan has been led to make this decision", he said.
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"We will participate in the IWC as an observer, and while maintaining ties to worldwide organizations our nation will keep contributing to whale resources management based on scientific principles".
Fuchs said whales are already facing a multitude of man-made threats, including climate change, overfishing, pollution and habitat loss.
The country's commercial whaling will be limited to "species whose abundance has been scientifically verified, such as the minke, sei and Bryde's", a fishery ministry official said.
Commercial whaling has been banned by IWC since 1986, but Japan has long lobbied for the restrictions to be eased.
The decision, some experts said, allows Japan to save the money it spends to support Antarctic whaling while taking a tough pro-whaling stance - a matter of national pride for some conservatives. But, he said, environmentalists have the most influence.
The Japanese government, which began scientific whaling in 1987, a year after the worldwide whaling moratorium was introduced, has long maintained that most whale species are not endangered - six of the world's 13 "great whale species" are classified as endangered, according to the World Wildlife Fund.
But doubts exist about whether Japanese commercial whaling can be economically viable, especially as fewer people than ever are eating whale meat, they said. He said the country's ships will not hunt in the Antarctic or in the southern hemisphere, which was the main source of concern for Australia. Japan exploited that loophole, sending large vessels to the Antarctic that killed hundreds of whales annually, with their meat ending up for sale in Japan. Yet the government argues that it is part of Japan's traditional culture, dating back centuries.
Suga said that Japan would notify the IWC of its decision by December 31 and that it remains committed to worldwide co-operation on proper management of marine life even after its IWC withdrawal.
Much of the meat ends up in shops, even though most Japanese no longer eat it. Whale consumption accounted for 0.1 percent of all Japanese meat consumption, according to the Asahi newspaper.