Planning permission can be a problem
But the 200 kilowatt reactor measures only six metres (20 feet) by two metres (6.5 feet).
It uses molten lithium-6 as a coolant in a system which the researchers hope will automatically shut down if it overheats.
Planning trouble
"In future it will be quite difficult to construct further large nuclear power plants because of site restrictions," Mitsuru Kambe, head of the research team at Japan's Central Research Institute of Electrical Power Industry (CRIEPI) told New Scientist.
"To relieve peak loads in the future, I believe small, modular reactors located in urban areas such as Tokyo Bay will be effective," he said.
Conventional nuclear reactors use solid rods to control the rate at which the nuclear fuel releases energy and thereby control the temperature of the reactor.
Liquid solution
The rods absorb neutrons, the subatomic particles which keep the nuclear chain reaction going.
The Japanese researchers aim to make the process automatic by using molten lithium-6 instead.
As the temperature rises in their reactor, the molten liquid expands and rises through tubes into the reactor core, absorbing neutrons and slowing the chain reaction to a safe rate.
Mr Kambe was both optimistic and realistic about the future of his team's work.
"Rapid power plants could be used in developing countries where remote regions cannot be conveniently connected to the main grid," he told the magazine, adding:
"The success of such a reactor depends on the acceptance of the public, the electricity utilities and the government."
The reactor would still face the problems of waste transport and disposal associated with larger power stations.