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The current state of emergency was due to expire on August 31 but it will now last until September 12.
It comes as Tokyo reported 4,277 new cases on Tuesday after a record 5,773 on Friday.
Prime Minister Yoshihide Suga said: "The Delta variant raging across the world is causing unprecedented cases in our country.
"Serious cases are increasing rapidly and severely burdening the medical system, particularly in the capital region."
The state of emergency will cover nearly 60 per cent of Japan’s population as the seven prefectures of Ibaraki, Tochigi, Gunma, Shizuoka, Kyoto, Hyogo and Fukuoka are included.
Less strict "quasi-emergency" measures will be applied to a further 10 prefectures.
Restaurants will be asked to close early and stop serving alcohol in exchange for a subsidy.
Mr Suga said the government would also request occupancy limits at department stores.
As Covid-19 cases continue to spread, health experts fear deaths could spike in Japan and threaten the medical system.
Economy Minister Yasutoshi Nishimura said: "Many experts expressed an extremely strong sense of crisis about the medical care situation and the status of infections.”
More than 80 per cent of Tokyo’s critical care beds are occupied.
Serious cases climbed to records of 276 in Tokyo and 1,646 nationwide on Tuesday.
The increase in cases comes after torrential rains triggered floods and landslides in western Japan.
Authorities in Hiroshima and the northern part of Kyushu issued their highest evacuation alert as the weather agency reported unprecedented levels of rain in the area on Saturday.