"I want to accept the election results sincerely and continue responsible policies with the feeling that this is a new start line," Kan said on Sunday.
"This election result showed we have ended up failing to achieve our initial goal by far. I feel very sorry for those who have supported us."
Kan said the Democrats would ask opposition parties to co-operate on a policy-by-policy basis rather than invite them into a formal coalition right away.
The DPJ won a landslide victory in a general election last September, ending more than five decades of almost unbroken conservative rule, promising to cut waste and focus spending on consumers.
But it has failed to deliver on the hopes for change among many Japanese and the party's first prime minister, Yukio Hatoyama - Kan's predecessor -disappointed voters by breaking a campaign pledge to move a US Marine base off the island of Okinawa and by getting mixed up in a funding scandal.
More recently Kan's own ratings have slumped after he floated plans to increase Japan's sales tax and failed to convince voters he had a clear plan for fixing the country's economic problems.
Following Sunday's results Kan said he felt responsible for failing to fully explain his call for debate on the sales tax but would continue to call for multi-party talks on the topic.
"Even a great man can't make things happen in only a year"
Japan's prime minister
"Kan has really nosedived. He took office with about a 60 per cent popularity rating and now that's down to about 40 per cent," Jeff Kingston, professor of Asian Studies at Tokyo's Temple University, told Al Jazeera.
"So it's really a question of how bad the blood-letting is going to be."
Kan has made tackling Japan's massive public debt a cornerstone of his administration, but a loss of the DPJ's upper house majority would be a major setback to those efforts.
"He has got an ambitious reform agenda, he's got to promote economic growth, he's got to cut the budget deficit, he's got to create jobs and he's got expand the safety net," Kingston said.
"To do all those things succesfully is very difficult. But the message that has turned off voters is not that they have to tighten their belts its his handling of the tax issue."
In an effort to avert any losses in the last days of campaigning he has backtracked on talk of tax rises, urging voters not to punish the DPJ and give the party time to make an impact.
"Please give us not just fragile leadership but power to take action," Kan told voters at one of his last campaign rallies.
"Even a great man can't make things happen in only a year. Gritting my teeth, I want to maintain power for at least five years."
But Sadakazu Tanigaki, the leader of the opposition Liberal Democratic Party, said voters needed to pronounce judgement on the administration.
|Kan has proposed raising the sales tax to deal with Japan's massive public debt [EPA]
"We must stop wandering, reckless politics by the Democrats," he said as he wrapped up his campaign speech on Saturday night.
The DPJ needed to retain its majority in the upper house to avoid policy deadlock and begin taking steps to reduce a public debt already about twice the size of the nearly $5trn economy - the worst among advanced countries.
Surveys in several leading Japanese newspapers have forecast the party would secure around 50 or fewer of the 121 seats up for grabs in the 242-member upper chamber.
But a loss of its majority forces the DPJ and its much smaller coalition partner, the People's New Party, to seek new allies hampering its ability to push forward with Kan's fiscal reform drive.
The result of fewer than 50 seats leaves Kan vulnerable to a leadership challenge from DPJ powerbroker Ichiro Ozawa, who has been a vocal critic of Kan's plans to raise sales tax.