An ugly battle over political funds totaling as much as ¥1.33 billion has broken out as Japan's No. 2 opposition party works its way through a bitter internal split.

About 17 Osaka-based Diet members are reportedly leaving Ishin no To (Japan Innovation Party) to join another national party led by Osaka Mayor Toru Hashimoto.

The Osaka-based members have demanded Ishin no To be formally split into two new political parties, and that government subsidies for Ishin no To also be divided.

For fiscal 2015, a total of ¥2.66 billion was allocated for payments to Ishin no To in April, July, October and December.

Half of the funds — totaling ¥1.33 billion — have already been delivered to the party, and the next payment days are Oct. 20 and Dec. 20.

The leadership of Ishin no To has staunchly refused the demand, triggering a war of words between the Osaka-based and non-Osaka based Ishin no To members.

On Thursday in Osaka, Hashimoto, the founder of Ishin no To, formally declared he will launch a new party called Osaka Ishin no Kai on Oct. 24.

During a news conference, Hashimoto used fierce rhetoric to attack Ishin no To members who are staying with the party.

"I will continue calling Ishio no To the fake Ishin," Hashimoto told the news conference, which was live-streamed over the Internet.

"(Politicians) who are greedy about money will soon vanish. Heaven is watching, so (I have) no worries about it," Hashimoto said.

Officially, both sides have insisted they don't care much about the political funds, which are paid from taxpayers money based on a law enacted in 1994 to prevent political corruption.

But Nobuyuki Baba, an Osaka-based leader planning to leave Ishin no To, has repeatedly demanded that Ishin no To President Yorihisa Matsuno split the party into two new groups, between which the remaining ¥1.33 billion subsidy for the rest of the year would be split.

Ishin no To has been critically divided between Osaka-based lawmakers who are willing to support Abe's Cabinet and non-Osaka lawmakers who prefer siding with other opposition parties.

Non-Osaka members, led by Matsuno, are exploring ways to merge with the Democratic Party of Japan, the largest opposition party, to ensure the survival of individual members in the next election.

But Hashimoto has claimed the DPJ relies heavily on various labor unions, which he says makes it impossible for the DPJ to advocate any radical administrative reforms to eliminate the vested interests of government workers.

Hashimoto has also demanded that Ishin no To remove "Ishin" (Reformation) from the party name. The mayor left Ishin no To last month.

During the news conference, Hashimoto said many of Ishin no To's Diet members were elected thanks to election campaign efforts by local assembly members of Osaka Ishin no Kai, but they had since forgotten this and "are just enjoying life as Diet members."

"And they are receiving a subsidy of ¥2.6 billion a year. It's really waste of taxpayers' money," Hashimoto said.

"And if they want to grab away both the party name and money, that would be OK. It just explains the nature of their personalities."

Earlier the same day, Matsuno told reporters that "the money doesn't matter at all," though he added that Ishin no To should think about how they can serve voters who cast a ballot for the party in the previous Lower House election in December.

"We should think about how we can fulfill our responsibility for such people, who voted to give us the next four-year term" at the Lower House, Matsuno said.