TOKYO (Reuters) -- A Japanese opposition lawmaker who had alleged shady links between the ruling party and a disgraced Internet entrepreneur offered to resign on Thursday for failing to prove his case, dealing a blow to his struggling party.

The upset for the opposition Democratic Party looked like welcome relief for Prime Minister Junichiro Koizumi, who has been under fire because his ruling Liberal Democratic Party had backed Takafumi Horie, the former CEO of Internet firm Livedoor Co., as a symbol of reform in a September election.

Horie was arrested in January and indicted earlier this month on charges of breaking a securities law.

Democratic Party lawmaker Hisayasu Nagata said in parliament last week that Horie had ordered Livedoor officials via e-mail to pay 30 million yen ($250,000) in consulting fees to the son of LDP Secretary General Tsutomu Takebe, but has not provided evidence since then to prove it.

"He (Nagata) is thinking very hard about the fact that he does not necessarily have materials to back up the authenticity (of the e-mail)," Democratic Party Secretary General Yukio Hatoyama told reporters after media reports that Nagata intended to resign.

Hatoyama said party leaders had left it for him to decide Nagata's fate, but he had not yet made up his mind. Acknowledging that the opposition was in a tough spot, he added: "The battle over possible links between Livedoor and Secretary General Takebe or those close to him will be decided from here on."

The chaos in the opposition camp came less than a day after Democratic Party leader Seiji Maehara had challenged the government to investigate the allegations, saying his party would present concrete proof if a probe was launched. ------------ Big damage, talking tough

"The damage is very big for Maehara and other Democratic Party leaders unless there is information to prove links between Takebe and his son, and Horie," said Yasunori Sone, a political science professor at Tokyo's Keio University.

On Thursday the Democratic Party leaders were still talking tough.

"We will continue to investigate the flow of funds from Livedoor to those close to Takebe.... That is Maehara's policy," Yoshihiko Noda, a senior Democratic lawmaker, told reporters.

A failure by the Democrats to back up their allegations would come as a relief to the LDP, which despite a huge election victory last year has been backfooted by scandals and missteps.

The e-mail incident could also seriously damage the credibility of Maehara, 43, a security expert who took over the top party post after the Democrats were trounced in the September poll for parliament's powerful lower house.

Koizumi said politicians should be careful about making allegations, especially against private persons.

"I think it is better to avoid a policy of seeking to portray a scandal by making claims that one cannot even prove to be true," the prime minister told reporters.

Maehara, whose term as the opposition leader expires in September, has already vowed not to run if he fails to win agreement from his fractious party over key policy planks.

No national election looms until a poll for parliament's upper house in mid-2007, but the Democrats already face an uphill struggle to recover from the September election, when the party lost more than a third of its seats in the lower chamber.