The Tokyo vote was closely watched as sign of how the ruling party would fare against the opposition in a general election, which must take place by October.
The LDP has now lost four straight regional elections since April to the DPJ and the opposition party is expected to step up moves to force Aso to call early elections.
Reports say Yukio Hatoyama, the DPJ leader, may table a no-confidence motion in parliament against Aso’s government as early as Monday and lead his party in a boycott of parliamentary proceedings.
Analysts say Aso, who had reportedly been aiming for an early August national vote, is now likely to hold off a general election for as long as possible in the wake of Sunday’s defeat.
The LDP has been in power for all of the past 50 years except a brief period in 1993, but it has been racked by internal strife with Aso critics openly urging an early party leadership vote to replace him.
According to local media, some younger LDP members who have previously expressed dissatisfaction with Aso met at a Tokyo hotel on Sunday night in the wake of the polls defeat in the capital.
The LDP has 303 seats in the current parliament’s 480-seat lower house, and its partner Komeito has 31. The DPJ has just 112.
But opinion polls by Japanese newspapers indicate the DPJ is well placed to make major gains or even rise to power in a national election, with Hatoyama likely to replace Aso.
In a nationwide survey on Friday by the Yomiuri newspaper, Japan’s top-selling daily, 41 per cent of respondents said they would vote for the opposition party in the national election, compared with just 24 per cent for Aso’s party.
Nearly 46 per cent of respondents said Hatoyama, 62, was fit to be prime minister, compared with 21 per cent favouring Aso.