Tokyo ? Japan’s upper house of Parliament rejected a proposal to privatize the country’s postal system today despite a threat by Prime Minister Junichiro Koizumi that he would order a snap election if the legislation failed.

The defeat, by a vote of 125-108, was a heavy blow to Koizumi, who has championed postal reform for more than a decade. The vote showed considerable divisions in the ruling Liberal Democratic Party, which holds a majority in the chamber with its coalition partner.

Koizumi called an emergency Cabinet meeting after the vote that was expected to approve the dissolution of the lower house, paving the way for general elections.

The legislative package would have created the world’s largest private bank, but opposition is strong among ruling party lawmakers who say the measure would cut postal services to rural area and lead to layoffs.

A snap election was expected to be a tough challenge for Koizumi’s Liberal Democratic Party, which has been slowly declining in popularity despite its nearly unbroken string of 50 years in power. The opposition Democratic Party has made strong gains in recent elections.

Chief Cabinet Secretary Hiroyuki Hosoda had warned earlier today that dissolution of the powerful lower house of Parliament was inevitable if the package is voted down.

“Koizumi’s efforts have been toward reforming Japan. If this point can’t be understood among lawmakers, there’s no choice left but to seek judgment from the people,” Hosoda told reporters.