The Democratic Party, which was in power from 2009 until 2012 announced that it will not put forward any candidates in the election on October 22.
But all of its members of parliament will be able to seek nominations from Ms Koike’s new conservative, populist Party of Hope.
Leader of the Democrat Party, Seiji Maehara, said: “We will choose substance over appearance.”
Ms Koike, a conservative nationalist and former newscaster, set up her new party “Party of Hope” only TWO days ago.
Some commentators have likened her to a Japanese Nigel Farage figure.
She said on Friday she won’t accept all Democrats who want to run on her ticket, and liberals will probably be left out.
Japanese Prime minister Shinzo Abe called a snap election in the hope his improved ratings and a struggling opposition would help his Liberal Democratic Party-led coalition keep its majority in the lower house, where it now holds a two-thirds “super majority”.
However, no general election needed to be held until late 2018.
But the collapse of the Democrats and formation of Ms Koike’s party has thrown Mr Abe into a spin.
The growing momentum for the “Party of Hope” has also revived memories of a 1993 political drama when a coalition led by another reformist governor,
Morihiro Hosokawa, ousted the LDP for the first time since its founding four decades earlier.
Hosokawa’s fractious alliance fractured after less than one year.
Mr Abe said: “What would be born of a new party boom is confusion, not hope.”
Clearly, the historical parallels are weighing on the Japanese prime Minister’s mind.
Mr Abe, Ms Koike and Democratic Party leader Seiji Maehara were elected to the lower house for the first time that year, Ms Koike and Mr Maehara from Hosokawa’s Japan New Party and Abe from the LDP.
Mr Abe said: “There was a new party boom in the 1990s and the result was political confusion and a long period of economic stagnation.”
Polls show that the Party of Hope has 18 per cent, according to the Mainichi newspaper, compared with 29 per cent for the LDP.
The Democratic party polled at 8 per cent.
Mr Abe’s decision has evoked comparison’s to British Prime Minister Theresa May’s move to call a snap election in June, only to see her Conservative Party lose its overall majority, although analysts noted Ms Koike might have become an even bigger threat had Mr Abe waited.
Daniel Sneider, a Stanford University scholar currently doing research in Japan said: “Abe thought the risk worth taking. Maybe he didn’t anticipate what Koike would do.”
Ms Koike, who compares herself to French President Emmanuel Macron and his meteoric rise, has repeatedly said she’ll stay on as governor, but her carefully parsed comments have failed to dampen speculation.
Chief Cabinet Secretary Yoshihide Suga said: “Ms. Koike is saying she won’t run, but I think she will run.
“It would be great if she announced that boldly and debated policies head on.”