"There is a critical shortage of hospital beds in Osaka and Hyogo," Suga said at a government task force meeting. Hyogo is the prefecture west of Osaka.
Suga will hold a news conference at 7 p.m. (1000 GMT) to explain the decision.
Earlier, Economy Minister Yasutoshi Nishimura, who is also in charge of pandemic measures, said variant strains of the virus were spreading rapidly and the government was worried Tokyo could also run out of hospital beds soon.
At one nursing home in Osaka, 61 residents were infected with the coronavirus and 14 died while waiting to be hospitalised, public broadcaster NHK reported.
Osaka reported 1,005 new cases on Friday while Tokyo had 907. Nationwide, Japan has recorded 618,197 cases of infection and 10,585 deaths from COVID-19, the respiratory disease the virus causes, government figures showed.
The government also placed Aichi prefecture, home to Toyota Motor Corp 7203.T , and Fukuoka prefecture in the southwest under a state of emergency - joining Tokyo, Osaka, Hyogo and Kyoto, where current measures began on April 25.
The northern island of Hokkaido and two other prefectures were added to regions under a "quasi state of emergency," now totalling eight of Japan's 47 prefectures.
Under the extended state of emergency, bars, restaurants, karaoke parlours and other places serving alcohol will remain closed, while people will be urged to avoid taking unnecessary trips.
But other restrictions will be loosened.
Big commercial facilities such as shopping malls will be allowed to re-open but for shorter hours - though Nishimura noted that Tokyo and Osaka prefecture would make their own decisions based on their conditions.
Tokyo Governor Yuriko Koike told a news conference details of Tokyo's measures would come later on Friday.
Japan has not suffered as badly from the virus as other countries but its vaccination campaign has been slow with even many elderly people still awaiting inoculation.
Still, Japan and the International Olympic Committee insist the Games will take place, though foreign spectators have been banned. A decision on domestic spectators will be made by June, Tokyo 2020 President Seiko Hashimoto repeated on Friday.
Upcoming test events for the Olympics, including an athletics event at the weekend, will not be affected by the extension of the state of emergency. The diving World Cup, which featured more than 200 athletes from 50 countries, was held in Tokyo this past week under the current state of emergency.
But in Fukuoka, the Olympic torch relay scheduled on May 11 and 12 would be cancelled on public roads in some cities, media reported, citing the prefectural governor. Hyogo prefecture is also likely keep the relay off public roads when its turn comes later this month, Kyodo news agency reported.
(Reporting by Elaine Lies, Ritsuko Ando, Sakura Murakami, Daniel Leussink and Chang-Ran Kim; Editing by Richard Pullin and Christopher Cushing) ((email@example.com; +81-3-4563-2748; Reuters Messaging: firstname.lastname@example.org))