TOKYO--Japanese opposition leader Ichiro Ozawa has told his party he will resign, local media said on Monday, after an opinion poll showed a funding scandal involving a close aide was clouding his party's prospects in a looming election.

A political stalemate and voter frustrations with Prime Minister Taro Aso had raised the chances Ozawa would lead his Democratic Party to victory in an election that must be held by October, ending more than 50 years of nearly unbroken rule by Aso's Liberal Democratic Party (LDP).

But the Democratic Party's lead in polls had narrowed after the scandal, clouding the outlook for the solid opposition victory needed to break the deadlock that is stalling policy decisions as Japan struggles with a deepening recession.

"Things had gotten very tough. People were complaining about Ozawa ... This improves the outlook for the Democrats quite a lot," said independent political commentator Minoru Morita.

Ozawa was set to hold a news conference at 5 PM (0800 GMT), a party official said.

The Democrats have vowed to reduce bureaucrats' meddling in policy-making, stress the rights of consumers and workers over corporate interests, and adopt diplomacy less subservient to security ally the United States.

A survey by the mass circulation Yomiuri newspaper published on Monday showed the Democrats still had a razor-thin lead over the LDP, but that more than two-thirds of voters responding to the poll questioned Ozawa's decision to stay on.

Polls before the scandal had shown the Democratic Party with a clear lead.

The poll by the Yomiuri Shimbun newspaper showed 30 percent of respondents would vote for the Democratic Party in proportional representation districts at the election, against 27 percent who said they would vote for the LDP.

But 71 percent disapproved of Ozawa's decision to stay on compared with 22 percent who were happy with his leadership. Asked who was more suitable to be prime minister, more chose Aso than Ozawa, although over a third of voters were undecided.

Ozawa has said he would decide whether to quit over the funding scandal based on the outlook for his party winning the vote, which the media has speculated could be held in August.

Aso has threatened to call an early election if the Democrats obstruct debate in parliament on a massive extra budget to stimulate the economy and counter the effects of the recession, although it is is unclear if he thinks the LDP's fortunes have improved enough to go to the polls.

While support for Aso's cabinet fell to 10 percent in one TV survey three months ago, the Yomiuri survey on Monday showed support now at 28.7 percent, in line with a survey by broadcaster TBS, which put support at 31.4 percent.