Pledging to bring back "hope" to the Japanese people, she said she was launching the party to "reset Japan."
"Now is the time for us to carry out reforms that are un-tied to" vested interests, Koike told a nationally televised news conference.
Koike lamented that Japanese firms had lost their former glory, complaining that Chinese and American companies, like Amazon and Apple, "have become number one."
"The snap election is a chance to change," said the 65-year-old former anchor woman, accusing the ruling conservative LDP party of being too hesitant in its reform programme.
Most commentators say Koike's new party, called the "Party of Hope", will not have enough time to mount a serious nationwide challenge to Prime Minister Shinzo Abe before elections widely expected on October 22.
Abe called a snap election on Monday, hoping to capitalise on a weak and fractured opposition as well as a recent bump in the polls due to voter approval of his hard line on North Korea.
Surveys put him a long way of his nearest rivals but Yoel Sano, Head of Global Political and Security Risk at BMI Research, said Koike's entry into the fray was a "major wild card."
Voters may view Abe's snap election as a "cynical and opportunistic move, especially given the severity of the North Korean crisis, which does not need the 'distraction' of an early election," said Sano.
Koike said a "political vacuum" had been created by Abe's decision to call an election at a time when tensions over North Korea are at fever pitch.
Elected governor of Tokyo a year ago, Koike has already begun pulling disillusioned opposition lawmakers into her powerful orbit amid rumours that she could bring the largest opposition party, the Democratic Party, into the fold.
She reportedly held talks with Seiji Maehara, a former foreign minister and leader of the largest opposition party, with a view to possibly joining forces.
Maehara's struggling party, which changed name from the DPJ after a smaller opposition group joined it in March last year, has already suffered more than a dozen defectors, several of them to Koike's party.
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