One of the most powerful men in Japanese politics was found not guilty of a major funding scandal, paving the way for a possible showdown with the ruling party leadership.

Ichiro Ozawa, once dubbed the "Shadow Shogun", was on Thursday cleared by the Tokyo District Court of allegations he conspired with aides to hide 400 million yen ($4.9 million) he lent to his political funding body in 2004 to facilitate a land deal.

His aides said the mistake was purely technical and their boss -- a former Democratic Party of Japan leader who engineered the party's 2009 election victory -- had not been aware of it, while prosecutors said it was "unthinkable" Ozawa had not been in the loop.

Major TV networks cleared their schedules to report the verdict, with a huge media presence at the court for a case that has gripped Japan's political classes for years.

A spokesman for the court said 1,843 people queued up for the 46 seats available to the public.