Japanese Prime Minister Shinzo Abe said his party's stinging defeat in weekend Tokyo assembly elections represented a "severe criticism", after it lost over half its seats in the vote in a historic loss.

The polls, seen as a bellwether for national political sentiment, come as Abe is buffeted by a series of setbacks and scandals that have driven down his popularity.

A new political party set up by former TV anchorwoman Yuriko Koike, elected Tokyo governor in a landslide vote last year, was able to capitalise on this to seize 49 seats out of 127, becoming the leading group in the capital's assembly in yesterday's election.

"We have to take (the result) seriously as a severe criticism against our party the LDP," a chastened Abe told reporters Monday morning, after his Liberal Democratic Party's seat count shrunk dramatically from 57 to just 23, a record low.

"I'm determined to reshape the party to work together and win back trust among the public through realising achievements," he said.

Abe was elected prime minister in late 2012 with a mandate to revitalise the economy.

But the 62-year-old is under fire over allegations he showed favouritism to a friend in a business deal, which the prime minister has denied.

The claims come a few months after he was forced to deny connections to the controversial director of a school that had purchased government land at a huge discount — and counted Abe's wife as its honourary principal.

Koike, 64, is a former member of parliament and defence minister who is widely seen as having ambitions to return to national politics and is touted as a strong candidate to be Japan's first female prime minister.

After the election, her Tomin First party increased its assembly seats to 55 by admitting six further candidates who had run as independents.

A third party Komeito — a moderate party backed by a Buddhist-linked group — has long sided with Abe in national politics, but is cooperating with Koike's local party in Tokyo.

Its 23 seats, plus another belonging to a smaller party, gives Koike and her allies effective control of 79 seats in the assembly, a comfortable majority.