The fresh pledge comes on top of $760 million in aid Japan has given to Palestinians since 1993 and an additional $60 million in special assistance following the death of former Palestinian leader Yasser Arafat in November last year.
"Japan wants to see a peaceful co-existence of two independent states in line with the (Middle East peace) road map and we will give our utmost support," Koizumi told a joint news conference with Abbas on Monday following their meeting.
Koizumi said he praised Abbas's efforts towards improving security and seeking political reform. Abbas thanked Japan for its aid, and also urged Tokyo to exert its political influence for Middle East peace.
"Japan has balanced relations with the region and therefore we believe that is possible for Japan to do," Abbas said through an interpreter.
Koizumi said Abbas had expressed a willingness to meet Israeli Prime Minister Ariel Sharon in Tokyo if such an opportunity arises.
Koizumi praised Abbas's efforts
to seek peace and push reforms
The Japanese premier said he would ask Sharon about such a possibility during Sharon's visit to Japan, expected in the near future.
Abbas played down last week's decision by Israel to postpone its withdrawal from the Gaza Strip by three weeks, saying he believed the withdrawal would take place eventually.
"For religious reasons Mr Sharon has expressed a three-week postponement of disengagement but I don't think this is going to change that withdrawal," Abbas said.
Abbas reiterated his belief that the militant group Hamas, which is sworn to Israel's destruction, should take part in Palestinian parliamentary elections set for July.
"Hamas is accepting truce with Israel and they should participate in local elections for the Palestinian legislative council," Abbas said.
"That I believe is necessary for change and for political pluralism," Abbas said.
Abbas's three-day trip to Japan is the first such visit by any Palestinian leader in five years.
He leaves Japan on Tuesday for China and is due to meet US President George W Bush on 26 May in Washington.