Democratic Party of Japan Leader Yukio Hatoyama poses with rosettes indicating winning party candidates at his party's election headquaters in Tokyo on Monday. (Issei Kato/Reuters)

Japanese Prime Minister Taro Aso has conceded defeat in his country's election and stepped down as president of his long-ruling conservative party.

"As head of the party, I feel strong responsibility and it is my intention to resign," Aso told a news conference Monday. A successor as leader of the Liberal Democratic Party is expected to be selected by late September.

"The most important thing is rejuvenating our party," Aso said of the party that has governed Japan for all but 11 months of the last 54 years.

Officials results are still being tallied but several local media outlets are reporting that the opposing Democratic Party of Japan has won about 308 of the 480 seats in the lower house of parliament. The Liberal Democratic Party has reportedly only won about 119 seats, down from 300.

Official results are expected later Monday.

Voter frustration

The Liberal Democratic Party's election loss has been attributed to voters' frustration with the country's economy, which is in its worst economic slump since the Second World War, according to analysts.

Taro Aso, Japan's prime minister and leader of the Liberal Democratic Party, tells reporters Monday he will be stepping aside from the party. (Toru Hanai/Reuters)Yukio Hatoyama, leader of the Democratic Party, said he will focus on a quick transition for the new government.

"It's taken a long time, but we have at last reached the starting line," Hatoyama told a news conference on Monday. "This is by no means the destination. At long last we are able to move politics, to create a new kind of politics that will fulfil the expectations of the people."

A priority will be choosing Japan's next finance minister for the country, he said. Hatoyama, 62, expects to announce his cabinet in about two weeks, when he is officially named prime minister during a special session of parliament.

The 11-year-old party is mostly made up of an inexperienced group of left-wing activists and Liberal Democratic Party defectors, only a who few of whom have served in top government positions.

Record unemployment

The Democratic Party of Japan will also face an election next year for the less powerful upper house of parliament. They have controlled that chamber with two smaller allies since 2007, but if they fail to deliver quickly on their promises, the Liberal Democrats could resurge.

The win comes as Japan struggles with record unemployment and an economy that is showing tentative signs of emerging from a bruising recession. An aging population and public debt are also key challenges the Democrats will face.

The Democratic Party of Japan's solution is to move the country away from a corporate-centric economic model to one that focuses on helping people. They have proposed an expensive array of initiatives: cash handouts to families and farmers, toll-free highways, a higher minimum wage and tax cuts. The party has said it plans to cut waste and rely on untapped financial reserves to fund their programs.

Hatoyama has also said he wants to strengthen economic ties with Japan's Asian neighbours, including China. Japan should work with other Asian countries to create a single regional currency, he said.

With files from The Associated Press