His resignation is seen as a blow to new Prime Minister Taro Aso and could prompt early elections, the Japanese news agency Kyodo reported.

Aso, who took office and appointed his Cabinet last week, accepted Nakayama's resignation after the transport minister attracted scorn for saying Japan was "ethnically homogenous" and disparaging those protesting an airport expansion and the Japan Teachers' Union.

Aso named former administrative reform minister Kazuyoshi Kaneko, 65, to succeed Nakayama, also 65. But as criticism over the incident mounted against Aso, Kyodo said political analysts view the resignation as a blow to his government that could prompt the ruling Liberal Democratic Party to call for new elections.

Chief Cabinet Secretary Takeo Kawamura told Kyodo Nakayama's resignation was unavoidable, saying he would be "telling a lie if I say there will be no damage" to the administration. He vowed to make every effort to restore public confidence, the news agency said.