Peru's Foreign Minister Oscar Maurtua summoned Japan's ambassador to Lima, Hitohiro Ishida, on Thursday to inform him of the decision, a statement from the foreign ministry said.
"The government of Peru has decided to consider terminated the functions of the ambassador of Peru in Japan," the statement said.
"Any intervention by Tokyo in the extradition process underway with Chilean authorities for the ex-president Alberto Fujimori will constitute an unacceptable interference," the statement said.
Fujimori, 67, had enjoyed a safe haven in Tokyo for five years until Sunday when he flew unannounced to Chile as part of his bid to return to power in Peru, which has a warrant out for his arrest.
Fujimori, the son of Japanese immigrants, fled to Tokyo in 2000 to escape a corruption scandal, faxing his resignation as president from a Tokyo hotel. Japan granted him nationality and refused to extradite him to Peru.
He flew to Chile in a private plane and was arrested within hours. Chile is reviewing an arrest warrant from Peru, which wants to try him on charges of state-ordered killings and corruption during his decade in power.
Japan said on Thursday that its embassy officers in Chile had met Fujimori, and that he seemed to be in good health in custody.
Japanese diplomats had been pressing for consular access to Fujimori since his sudden departure on Sunday and prompt arrest in Chile.
Japan's ambassador to Chile, Hajime Ogawa, said three embassy officials met for 40 minutes with Fujimori, who wants to run in April's election in Peru but faces arrest if he returns there.
"He is very satisfied about his treatment but he is worried about his family," Ogawa said in Santiago, as quoted by Japan's Jiji Press.
Japan has said it is extending full assistance to Fujimori as it would to any citizen detained abroad.