Chikage Ogi, head of the Ministry of Land, Infrastructure and Transport, will step down as leader of the New Conservative Party, the smallest member of the ruling coalition, party officials said Monday.
The decision was made during a meeting Monday of NCP lawmakers.
Ogi was hospitalized last week.
NCP Secretary General Takeshi Noda will become the new leader, and Toshihiro Nikai, chairman of the party's Diet affairs committee, will succeed Noda, the officials said.
Ogi developed a fever Thursday and entered a hospital the same day. Her illness, stemming from impaired liver function, was apparently caused by the strain of dealing with the aftermath of Tuesday's terrorist attacks in the United States.
Prime Minister Junichiro Koizumi said Ogi will retain her ministerial post.
The matter of Ogi's replacement as New Conservative chief has been on the lips of party officials ever since its losses in the House of Councilors election in July.
Ogi, an actress before becoming a politician, was the only NCP lawmaker to secure a seat in the election, although the party had three seats up for grabs.
The ruling coalition is made up of the ruling Liberal Democratic Party, the NCP and New Komeito.