Amateur footage showed the 700-kilogramme (1,540-pound) kite, measuring 13 metres (43 feet) by 12 metres, diving into a crowd of spectators at a park in Higashiomi, central Japan on Sunday.
Four people were hurt in the incident at the city's annual "Big Kite" festival, including the elderly man, identified by local media as Junichi Yoshii, and a seven-year-old boy.
A spokesman for the city confirmed the death of the 73-year-old man early today morning.
"I want to sincerely apologise to visitors and our residents," he told the city assembly on Monday.
Police have launched an investigation into the case on suspicion of professional negligence, local media reported.
Giant kite festivals are not uncommon in Japan, and there have been previous cases of spectators being injured.
In 2004, eight people were hurt when a one-tonne kite smashed into a crowd in Kanagawa, near Tokyo.
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