Ishiba said the provision of funds, which came to light Wednesday, was intended for use by local LDP chapters in expanding the party's influence, not to support individual candidates.
The LDP has reportedly given 20 million yen (about 131,000 US dollars) to party branches where candidates have been denied official party endorsement.
The news was first reported on Wednesday in the Japanese Communist Party newspaper Shimbun Akahata.
Following the reports, opposition parties were ramping up their criticism of the funds provision, with the head of the main opposition Constitutional Democratic Party of Japan describing it as a way to support "clandestine candidates."
"We provided funds to local branches, not individual candidates. I feel outrage about the timing of the reporting," Ishiba said in a campaign speech in the western city of Hiroshima, Xinhua news agency reported.
"We can not succumb to biased media reports and views," Ishiba said, adding that the funds in question are not being used for the upcoming House of Representatives election, but for activities to inform the public of the LDP's policies at a time when the party is facing strong headwinds.
Public confidence in the LDP has been eroded by a high-profile slush funds scandal that some ruling party members had underreported income from fundraising events. The LDP did not endorse 12 scandal-tainted members in the October 27 general election.
Without official party endorsement, candidates can not receive the same level of financial and other logistical support as those backed by a political party.