Japan's Prime Minister Yoshihiko Noda dissolved the lower house of parliament Friday for an election next month, in a political gamble widely expected to strip his centre-left party of power.

Japan's sixth new prime minister in as many years set the revolving door of premiership spinning despite resistance from his fragmenting party, but after having stared down his opponents over crucial legislation.

"This is an election to decide on the nation's direction -- to go forward or to go backward," Noda told an evening press conference.

National broadcaster NHK had interrupted live coverage of a sumo tournament to show the dissolution, with the lower house speaker reading a short declaration prepared by the premier and endorsed by Emperor Akihito.

Lawmakers punched the air, shouting "Banzai" three times -- Japan's equivalent of "three cheers" -- before erupting into applause.

A later cabinet meeting endorsed December 16 as election day.

"We are determined to do our best to have the Democratic Party of Japan at the helm of the nation... and fight it out to move politics forward," Noda said.

"After a month of debate, I want the people to come to the right verdict."

Noda has been under pressure to call elections for months and offered dissolution of the main decision-making chamber in a parliamentary debate earlier this week.

He managed along the way to secure a number of concessions from his opponents -- key among them an agreement on a deficit-financing bill allowing the government to issue bonds to cover its debts this financial year, without which Japan would have effectively run out of money at the end of this month.

That bill passed the opposition-controlled upper house on Friday morning.

Noda's ill-disciplined DPJ is anything but united on the need for an election on December 16.

Poor poll numbers, voter disillusionment, increasing tensions with China, the slow pace of recovery from the tsunami of March 2011 and a plodding economy mean many in the DPJ fear for their seats.

Since Wednesday's debate the number of parliamentarians jumping ship has accelerated. Having had almost two-thirds of the 480 lower house seats when they came to power in 2009, the party had lost its majority by Friday morning.

Commentators say no single party will have the numbers to govern alone after the election, with an untidy coalition of the centre-right Liberal Democratic Party (LDP) and smaller fringe parties seen as a likely outcome.

Octogenarian former Tokyo Governor Shintaro Ishihara, who established his Party of the Sun this week, met Friday with Osaka mayor, Toru Hashimoto, the sharp-witted leader of the recently-launched Japan Restoration Party.

Kyodo News cited sources close to Hashimoto's party saying the pair would meet again to thrash out a deal on Saturday as they look to narrow their policy differences and forge a "third pole" between the two largest parties.

"The focus will be on how many seats the third force, led by Hashimoto, will gain. They may have a balance of power, depending upon election results," said Koji Nakakita, professor of politics at Hitotsubashi University in Tokyo.

He added that the LDP may seek to shore up its alliance with New Komeito, a centrist Buddhist grouping.

LDP leader Shinzo Abe, who is positioned to return to the job of prime minister, a post he held for a lacklustre year to 2007, told a press conference the party's three years out of office had been ones of reflection.

"We will build a strong economy that will become a stronger foundation of social programmes, that will result in vibrant regional economies, and that will bring a strong recovery" to the tsunami-hit northeast, he said.

Financial markets have begun preparing for an LDP-led government, which is expected to be more business-friendly, with the yen softening markedly after Abe called for "unlimited easing" by the Bank of Japan.

Tokyo stocks jumped 2.20 percent Friday, and were up 3.05 percent over the week, with the benchmark Nikkei 225 index at the Tokyo Stock Exchange closing at 9,024.16.