A Japanese man who blew a $360,000 Covid-19 handout at online casinos after receiving the cash in error will pay authorities back "bit by bit", reports said Wednesday.

"I feel very sorry that I used it up," the man said according to his lawyer, who told the Yomiuri Shimbun daily that his client had gambled away the money.

The hefty lump sum was transferred last month in a mix-up by officials in the remote town of Abu in western Japan, which had organised a cash handout for low-income residents affected by the pandemic.

Weeks of failure to repay the 46.3 million yen by the man, who is reportedly 24 years old, led authorities to sue him in a desperate attempt to get their money back.

Now, he has made up his mind to "return the money -- even if it's going to be bit by bit," his lawyer said.

The town says officials at one point even asked the man's mother to join them in visiting him at work to convince him, but to no avail.

And questions have emerged over whether he is able to pay the money back at all, after the lawyer said his client is now running very low on funds.

Abu's mayor, Norihiko Hanada, told reporters on Wednesday that he was "honestly happy" about the man's decision, but said the town is not planning to withdraw its lawsuit.

"That's one thing, and the lawsuit we're filing against him is another thing, so I hope that he will tell the truth in court," Hanada said.