In a stunning setback for Prime Minister Morihiro Hosokawa, the upper house of Japan's Parliament rejected landmark legislation Friday designed to clean up rampant political corruption.

The defeat raised questions about whether Hosokawa, who had staked his administration on the reforms, would be able to remain in office. It also increased the likelihood that political confusion would further delay government action to revive Japan's ailing economy.The reform package was defeated 130 to 118.

In a news conference after the vote, Hosokawa noted that the current parliamentary session does not end until Jan. 29 and avoided questions about what he would do if he failed to work out a compromise.

"We still have time to do our best," Hosokawa said. "It is my responsibility to do my best in the time remaining."

Hosokawa had hinted he would resign or call elections if the legislation failed, but it was not immediately clear what his next step would be. Some legislators said he should stay on and work to revive the economy, which is suffering perhaps its worst recession since World War II.

"We have to do something to allay the fears of the public about the economy," Hosokawa said.

Coalition leaders said they wanted Hosokawa to try convening a conference committee of the two houses of Parliament to work out a compromise package. The bills can also still be enacted if the lower house, which passed them in a close vote Nov. 18, approves them again by an unlikely two-thirds margin.

The main opposition Liberal Democratic Party, which opposed the reforms, has enough votes to defeat Hosokawa's coalition in either case.

"The double-digit defeat is extremely weighty," said LDP Secretary-General Yohei Kono. "We have seen a negative reaction on the part of many legislators against the coalition's method of running Parliament."