The leader of Japan's largest opposition party Katsuya Okada, conceded defeat on Sunday and announced that he would be quitting as party chief.
Initial results and exit polls conducted by major Japanese media had Koizumi's party on course to win its biggest ever proportion of seats in the 480-seat lower house.
Public broadcaster NHK predicted the party would win as many as 309 seats, compared to the 249 it held when Koizumi dissolved the chamber on 8 August.
The most it ever held was 300 of the body's then 512 seats in 1986. Official results were to be announced on Monday morning.
"I had hoped we would win a majority with our party alone, but we did even better than that," said Koizumi, smiling broadly, as the results were still coming in late on Sunday night.
"I thank the nation for its support and understanding."
Koizumi called the snap election last month after rebels in his party shot down his cherished goal of privatising the gigantic postal service, a move he has argued is the key to revamping the world's second-largest economy.
"I thought it would be okay for the LDP to get a simple majority but people gave us even better results than we had expected. I'm overwhelmed with gratitude"
Japanese Prime Minister
The populist prime minister surrounded himself with fresh faces - often women - during the election, vowing to transform the country's political culture.
He had vowed to resign if the LDP did not win but the Tokyo Broadcasting Corporation, just moments after voting closed, said its exit poll showed the LDP would get 307 seats in the 480-seat lower house.
The LDP won 237 seats in the last election in 2003. It was defending only 212 seats after Koizumi expelled dissenters from the LDP.
"I thought it would be okay for the LDP to get a simple majority but people gave us even better results than we had expected. I'm overwhelmed with gratitude," said Koizumi, relaxed in a striped shirt without a tie.
The main opposition Democratic Party of Japan (DPJ), which proposed its own set of wide-ranging reforms, has been projected as a distant second, with 105 seats, down from the 177 it was defending, the Tokyo Broadcasting projection said.
Opposition leader Katsuya Okada
announced he would resign
Okada, the opposition leader, said that he would take responsibility for the humiliating loss.
"The overall situation has now become clear ... the DPJ has suffered a great setback," Okada said.
"It's clear to everyone that the DPJ can't form a government now," he added. "So I'd like to step down as party leader, and a new leader should be selected as soon as possible".
Okada had promised to repair ties with China and pull troops out of Iraq.
"Our message did not reach people. I regret that," he said.
Koizumi, the longest-serving prime minister in a generation, called the election more than two years before schedule in what was seen as a risky gamble.
Observers and even many in his party suggested he would divide and defeat the LDP, which has ruled Japan for all but 10 months since 1955.
The US State Department on Sunday congratulated Koizumi on his victory.
The State Department looks forward to continuing to work closely with the Japanese government, said spokeswoman Darla Jordan, and "to move ahead in our close cooperation on a broad range of global, regional and bilateral issues".
But neighbours China and South Korea might not be as pleased.
Koizumi has indicated no change
on his visits to Yasukuni shrine
Koizumi indicated no change on Sunday in his stance on visits to a war shrine opposed by Beijing and Seoul.
Asked when he would visit the Yasukuni shrine later this year, Koizumi said: "I will make a decision appropriately."
It was Koizumi's usual response when asked about the Shinto sanctuary, which honours 2.5 million Japanese war dead, including 14 top convicted war criminals.
On taking office in 2001, Koizumi pledged to pray annually at the shrine. He has so far kept the promise, with his last visit on 1 January 2004, and indicated he would go some time this year.
The pilgrimages have infuriated China and South Korea, both of which Japan is accused of committing war-time atrocities against and see Yasukuni as a symbol of militarism.