Ozawa, a scandal-tainted politician known for shaking things up, told the Wall Street Journal that he was "thinking about how to deal" with a no-confidence motion that the biggest opposition party is threatening to submit.
Kan is already Japan's fifth prime minister since 2006, and now rivals in opposition and ruling party camps are keen to dump him.
The prime minister is under fire for his handling of the worst nuclear disaster since Chernobyl and delays in rebuilding from the deadly March 11 earthquake and tsunami. But even before then, he had been struggling to push policies through a divided parliament.
"If the prime minister cannot implement policies, it's meaningless for him to stay in power," the 69-year-old Ozawa, a former head of Kan's Democratic Party (DPJ), told the newspaper. "I think the sooner he is replaced, the better."
Sadakazu Tanigaki, head of Japan's main opposition Liberal Democratic Party (LDP), said on Thursday that his party planned to submit a no-confidence motion. The second biggest opposition group, the New Komeito party, weighed in a day later.
"A majority of the public is of view that the reconstruction of Japan after the disaster cannot be left up to the Kan administration," Yoshihisa Inoue, the party's No.2 official, told reporters.
Analysts questioned whether a no-confidence motion would get the backing it needs to pass parliament's lower house and force Kan to either resign or call a snap election, although they said the possibility could not be ruled out.
Even if Kan survives, his weak grip on a fractious ruling party and the divided parliament spell trouble implementing reforms including a possible rise in the 5 percent sales tax to fund the rising costs of a fast-aging population.
About 75 of more than 300 DPJ lower house members would need to defect, effectively splitting the party which swept to power for the first time in 2009, promising to change how Japan is governed after more than 50 years of almost non-stop LDP rule.
"The situation surrounding the party is in flux but I do not see the motion gaining the support of a hundred or even fifty ruling party lawmakers. Also, Ozawa does not appear to have a strong enough reason to challenge Kan," said Tetsuro Kato, a political science professor at Waseda University.
But Ozawa's interview was a clear sign of a deepening rift within the ruling party, where dissenters dislike Kan's policy shift away from his campaign pledges to put more money in consumers' hands and worry that his poor ratings will scuttle their chances at the next election, due by 2013.
In the interview, he said now was not the time for fiscal austerity despite Japan's huge public debt, already twice the $5 trillion economy. Kan has said he would submit a second extra budget to rebuild the tsunami-devastated northeastern region of Japan, but haggling is in store over how to fund it.
"This is not a matter of money, but of life and death for the Japanese," Ozawa said. "We can always print money ... Bonds will have to be paid back, but if you can save lives with money, then so be it."
Ozawa, criticized by some as an old-style proponent of pork-barrel politics, prompted bond yields to rise briefly in September when he challenged Kan for the premiership. Ozawa, a seasoned political strategist who last year lost to Kan in a party leadership contest, was indicted this year over an alleged violation of campaign-funding laws.
"I was thinking about just fading away but now I feel I have a bit more work to do," Ozawa told the Journal.