Sunday’s lower house election was the first chance for 103 million voters to pass judgement on the two and a half year-old Koizumi government, which preached reform to end more than a decade of economic stagnation but had few results to show for it.
A chastened prime minister acknowledged after polls closed that people were impatient for change after 48 years of virtually unbroken Liberal Democratic Party rule.
"Since the LDP has ruled a long time, I suspect people are wanting change and the DPJ's (opposition Democratic Party of Japan) strong gains reflect such a wish," Koizumi said.
"There are lots of people who are becoming impatient for the results of reforms."
According to final media estimates early on Monday, the coalition was assured of winning 275 seats out of 480 in the lower house of parliament following Sunday's election.
The LDP alone won 237 seats, down from the 247 it held before the ballot, the media reports said.
Naoto Kan (C), saw his party, the
DPR perform well at the polls
If confirmed in official results to be released later on Monday, the LDP will lose the lower house majority it previously held in its own right and will need the support of its coalition partners.
Takenori Kanzaki, leader of one of the other coalition members, the Buddhist-backed New Komei, confirmed his party would continue to support the government.
In the last parliament, the coalition held 287 seats, compared to 137 for the DPJ, which won 177 seats this time, according to reports.
Koizumi took power two and a half years ago advocating drastic economic reforms. But hopes were dashed after he reneged on some key promises, including a cap on new government debt.
The pension system - strained by the rapid greying of Japan's population - emerged as a key issue for voters while Koizumi also had to play down his unpopular plans to send troops and cash to war-torn Iraq.
"Since the LDP has ruled a long time, I suspect people are wanting change and the DPJ's (opposition Democratic Party of Japan) strong gains reflect such a wish"
Japanese prime minister
The liberal-leaning DPJ, bolstered by a merger with the smaller Liberal Party in September, claimed to represent those who had been excluded by what it called a political structure of vested interests.
It had also vowed to establish a government that would trim the bureaucracy, cut wasteful spending and boost jobs.
Many younger, urban residents seemed to favour the DPJ, while older and rural voters stuck with the LDP.
Hidekazu Kawai, professor of politics at Gakushuin University in Tokyo, said although Koizumi appeared set to stay in office, he faced a tough task in handling intra-party rows and relations within the coalition.
"The significance of the election was that the opposition camp fielded a realistic leader to replace an LDP-backed prime minister and drew the LDP into a battle on policies for the first time in Japan's post-war politics," Kawai said.