Japan's government Tuesday approved draft "state of emergency" measures that would allow authorities to keep people inside and commandeer buildings for hospitals, as Tokyo steps up its fight against coronavirus five months before the Olympics.

If approved by parliament, the draft bill would give Prime Minister Shinzo Abe the power to declare a state of emergency and impose drastic measures but Tokyo stressed that the situation had not yet reached that point.

"Currently we are not in a situation where we need to declare a state of emergency," top government spokesman Yoshihide Suga told reporters on Tuesday.

The virus has infected more than 500 people across Japan and been linked to nine deaths. Its spread has cast doubt over whether the Olympics can open as scheduled on July 24, although authorities insist planning is continuing as normal.

Unlike neighbouring South Korea, Japan has not undertaken widespread testing and the Abe government came under heavy fire for its handling of the Diamond Princess cruise ship that docked near Tokyo with nearly 700 people eventually becoming infected onboard.

Tokyo has said the coming few weeks will be crucial in slowing the spread of the coronavirus and Abe has urged schools to close for several weeks, in an announcement that caught the whole country off-guard.

The bill approved by the cabinet on Tuesday is a revision of a 2012 law aimed to slow the spread of new strains of flu and is expected to sail through parliament this week with opposition support.

Under the new law, once the prime minister declares a state of emergency in a specific part of the country, local governments can require residents to stay indoors, close schools and limit the use of facilities in which large numbers of people gather.

Land and buildings could be requisitioned as makeshift hospitals.

Abe has said that even though Japan is not yet seeing an epidemic over a wide area, "it is important to always prepare for the worst case".

With the new legislation, the government can take similar steps against the new coronavirus for up to two years.

Separately, Abe has pledged an emergency financial package to tackle the outbreak.

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