Yukio Edano, deputy head of the Democratic Party (DP), said he would form the new party with like-minded members after the former main opposition group imploded last week.
DP leader Seiji Maehara announced last week the party would not field candidates in the October 22 poll, joining forces with the new "Party of Hope" formed by popular Tokyo governor Yuriko Koike in a bid to topple Prime Minister Shinzo Abe.
"Unfortunately, the policies and philosophy of the Party of Hope are different from the direction of the policies and philosophy which we are aiming at," Edano told reporters.
The party will be called the Constitutional Democratic Party.
Abe last week called the snap election, seeking a fresh term at the helm of the world's third-largest economy.
He hoped to capitalise on a weak and fractured opposition to sweep back into power, as polls had shown him regaining ground for his hawkish stance on rising tensions with nearby North Korea.
Opinion polls have shown that 34 per cent of Japanese plan to vote for Abe's Liberal Democratic Party while 19 per cent favour Koike's new party.
One quarter of those polled were still undecided.
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