The opposition had alleged that Livedoor's flamboyant young entrepreneur Takafumi Horie sent $256,000 of secret campaign money to the son of Tsutomu Takebe, the ruling Liberal Democratic Party chief.
"It is extremely regrettable that harm was done to an individual based on unfounded information," Koizumi told parliament on Friday.
"Before we even talk about whether an act is legal, we must keep our good manners. I believe courteous behaviour is a must even when we criticise others," he said.
Hisayasu Nagata, a lawmaker for the main opposition Democratic Party, on Thursday read in parliament a purported August 2005 e-mail from Horie to Takebe's son Tsuyoshi labelled as "secret" which authorised the payment for "election consulting".
Horie, once considered a business pioneer for his aggressive ways, had run unsuccessfully with Koizumi's blessing in the 11 September general election.
Horie's lawyers met with the jailed 33-year-old internet guru on Friday and he denied both sending the e-mail and the money, Jiji Press reported.
Takebe again denied the allegation on Friday, saying: "I checked, together with an impartial bystander, all the bank accounts that belong to my son and his company. We didn't find any facts that are linked to the allegation."
Koizumi says the allegations
against him are unfounded
The elder Takebe has been embarrassed by television footage from the election showing him campaigning with Horie and lauding him as "my son and my brother".
But the scandal has helped tarnish the image of Koizumi, who won the election by a landslide and is set to retire this September.
Approval of the Koizumi cabinet slipped to 43.2% in February from 49.7% in January, the fourth straight monthly decline, according to a poll of 2000 people by Jiji Press released on Friday.
Horie, a declared supporter of Koizumi's "reform" message, was indicted on Monday for alleged securities fraud and is also accused of lying about the company's earnings.