His landslide victory on Sunday boosted his Liberal Democratic Party's standing in the lawmaking lower house by nearly a fifth and gave ruling lawmakers a two-thirds majority - along with a coalition partner - to override votes in a still-hostile upper house.
The LDP's final tally stood at 296 seats in the lower house, public broadcaster NHK reported, well above the 241 seats needed for a majority and the 249 seats it held when Koizumi dissolved the chamber last month.
Optimism about the results sent Tokyo's benchmark Nikkei stock index surging 1.8% to 12,915.53 points in early trading.
Koizumi, who plans to step down in September next year, quickly came under pressure to use his new strength to deliver - not just on his cherished plans to privatise the nation's postal savings and insurance system but on issues ranging from pension reform to diplomatic relations.
"If his policies and the party's stature betray the people's expectations, there will some day be a backlash," the Asahi newspaper said in a front-page analysis.
"As soon as possible, he has to say what he will do after postal reform, and show concrete programmes."
The LDP victory delayed any notion that Japan was entering an era of two-party politics following impressive recent gains by the opposition Democratic Party.
The Democrats took a disheartening plunge on Sunday to 113 seats from 175.
Optimism about results sent
the Nikkei stock index surging
Party leader Katsuya Okada announced early on Monday that he would step down as party head to take responsibility for the defeat.
The Democrats plan to elect a new president on Saturday, Kyodo News agency reported.
The LDP victory will test Koizumi's ability to transform the party's once-moribund, pork-barrel politics into a streamlined force for dynamic reform and small government.
"The ranks of the LDP's old guard have declined, and the party now has more young members, as well as more women. But its actions going forward will determine whether the party has truly changed," the Nihon Keizai newspaper said in a Monday editorial.
"While Koizumi's term as LDP president ends in one year, attention will focus on whether his tenure will be extended in light of the landslide victory."
Koizumi insisted again on Monday that he will retire next year but said he wants the next LDP president to carry his reform torch.
"I hope someone who works hard, is prepared for the task, and has the passion to move ahead with the reforms the Koizumi cabinet has forged becomes president," Koizumi said at a news conference.
Koizumi plans to call a special session of parliament as soon as 21 September to again tackle postal privatisation, Chief Cabinet Secretary Hiroyuki Hosoda said.
Koizumi plans to call a special
session of parliament
The legislation was slapped down last month in the upper house with the help of rebels from within his own party.
Koizumi plans to reshuffle his cabinet after the special session ends, Kyodo reported.
This time, numbers are on his side. Combined with seats from ally New Komei Party, the ruling coalition now has more than 320 seats - a two-thirds majority to override votes in the upper house.
Official results were expected early on Monday morning, but election officials said a minor counting error in one prefecture was delaying their release.
Voter turnout surged more than seven points from the last elections in 2003 to 67.5%, election officials said.
The public also is eager to see the government address the pension problem, deteriorating diplomatic relations with China and South Korea, and Japan's commitment to sending troops to Iraq.
"I have been working on privatisation along with other issues such as social security, the issues important to the people of Japan,”
Japanese Prime Minister
But Koizumi tried to deflect criticism that he's too focused on postal privatisation at the expense of other reforms.
"I have been working on privatisation along with other issues such as social security, the issues important to the people of Japan," Koizumi said.
"But as I have been saying, if you don't privatise the post, how can you move ahead with other reforms?"
Koizumi, a staunch ally of US President George W Bush, is expected to stand by Tokyo's dispatch in support of the US-led coalition in Iraq and is also a strong supporter of the continued presence of 50,000 US military personnel in Japan.
The opposition Democrats had pledged to withdraw troops from Iraq.
Koizumi is a staunch ally of US
President George Bush
Proponents of postal reform say privatising its savings and insurance programmes with $3 trillion in deposits will put that money into more efficient investments and produce a bigger boost for Japan's economy, which is the world's second biggest but has stagnated for years.
The plans resonate with a public worried that bloated government bureaucracies are sapping economic growth while the ageing of the population raises questions about how Japan will pay for future retirees.
Postal savings have long been used by the LDP as a slush fund for public-works projects.