The BBC's Juliet Hindell reports from Tokyo

He will almost certainly become prime minister when parliament meets later this month.

The BBC correspondent in Tokyo says there will be immediate pressure on Mr Obuchi to restore confidence in the ailing Japanese economy, in particular by reforming the banking sector which is riddled with bad loans.

Economist Nariko Hama: Japan needs radical change, but Obuchi won't provide it

Mr Obuchi told reporters he would make an-all out effort to pull Japan out of its economic recession.

But critics have accused Mr Obuchi of being too bland to make any significant impact.

It was Japan's economic crisis that led to the resignation of the outgoing Prime Minister, Ryutaro Hashimoto, earlier this month.

Outright majority

Keizo Obuchi: under pressure

Mr Obuchi won 225 votes in the first ballot. He needed only 208 to gain an outright victory over his two rivals - Health Minister Junichiro Koizumi, 56, and political veteran Seiroku Kajiyama, 72.

Mr Kajiyama, the main challenger, came in with 102 votes, and Mr Koizumi with only 84.

Prime Minister Hashimoto resigned to take responsibility for the party's disastrous showing in elections earlier this month for the upper house of Parliament. Voters deserted the party for its poor management of the economy.

Quick vote

Mr Obuchi is now set to be elected prime minister in a vote by parliament on 30 July, because the LDP commands a comfortable majority in the lower house.

He had been seen as the front-runner of the election, with broad party support. Voting took only 37 minutes.

The BBC correspondent says that although the result was not unexpected, the size of the majority was a surprise.

Markets wary

Analysts say that, while Mr Obuchi is known to be good at forging political deals, he is not the ideal choice for the markets.

The yen tumbled to 141.70 against the dollar just after Mr Obuchi's victory was announced, a significant drop from its position just 15 minutes before the result.