Health Minister Norihisa Tamura defended the policy shift, saying that by asking people with less serious symptoms to isolate at home, Japan could ensure it did not run out of hospital beds for people in need of intensive care.
"The pandemic has entered a new phase ... Unless we have enough beds, we can't bring people into hospitals. We're acting pre-emptively on this front," Tamura told parliament.
"If things don't turn out as we expect, we can roll back the policy," he said, adding that the policy shift was a move to deal with the unexpectedly fast spread of the new variant.
The outcry is another setback for Suga, who has seen support plunge due to his handling of the pandemic ahead of general elections to be held this year.
Opposition parties agreed on Wednesday to ask the government to abandon the hospitalisation policy, an opposition lawmaker said.
Even a lawmaker from New Komeito, a coalition partner of Suga's ruling Liberal Democratic Party, argued for a review or roll-back.
Japan has seen a sharp increase in coronavirus cases. Tokyo, had 3,709 new cases on Tuesday, and a record high of 4,058 on Saturday.
Suga and Olympics organisers say there is no link between the July 23-Aug. 8 Summer Games and the sharp increase in cases.
But Shigeru Omi, Japan's top medical adviser, told parliament the hosting of the Games may have affected public sentiment, suggesting the event was eroding the effect of government requests for people to stay home.
Imposing a nationwide state of emergency could be an option to deal with the pandemic, he said. States of emergency are already in place in several prefectures, as well as Tokyo.
"Political leaders are sending out messages to the public in earnest, but probably not as strongly and consistently as hoped," Omi said. "We're seeing COVID-19 clusters emerge more broadly including at schools and offices," he said.
Kenji Shibuya, former director of the Institute for Population Health at King's College London, said the hospitalisation policy would likely cause more deaths of home-care patients but reversing course would be tough since available beds were filling up fast.
He said the only other options would be to set up field hospitals or revise the Infectious Disease Law to give the government more authority to order large public hospitals to take more COVID-19 patients, a step it has rejected in the past.
"They are paying the price now," he said.
(Reporting by Leika Kihara; Additional reporting by Linda Sieg; Editing by Gerry Doyle and Stephen Coates) ((firstname.lastname@example.org; +813-6441-1828; Reuters Messaging: email@example.com))