Watanabe's departure came just before the parliament was set to vote on budget bills that include a proposal to hand out money to spur spending.
Watanabe and the opposition parties fiercely oppose the plan, calling it a waste of money, and polls show most voters are against it as well.
Watanabe has said he does not intend to start a new party, but added there are many within the ranks of the LDP who share his views and said he expects they will co-operate with him.
Eiken Itagaki, a political analyst and author, told the Associated Press that a mass defection was not likely because many politicians depend on the party infrastructure to keep their seats.
"Those that oppose the party openly will be cutting their own throats," he said.
Watanabe has strong support from voters in his home district, and he is less reliant on the LDP.
But Itagaki said if the next round of elections weakens the party, as is widely expected, more members could defect.
Japan's prime minister has the power to dissolve parliament and call general elections at any time.
By law however, Aso must call elections by September of this year.