* Japan to spend up to 50 bln yen on Fukushima water steps - media
* Package to be announced Tuesday
* Minister ridicules Tepco's response to crisis
* Government rushes to respond before Olympic decision (Recasts throughout with details, context, adds dateline, byline)
By William Mallard
TOKYO, Sept 3 (Reuters) - Japan is set to pledge up to $500 million to contain leaks of radioactive water from the crippled Fukushima nuclear plant, with the government stepping up its intervention in the world's worst atomic disaster in a quarter of a century.
Trade and Economy Minister Toshimitsu Motegi said late on Monday the government would fund "tens of billions" of yen to address the water crisis after the embattled operator of the plant, Tokyo Electric Power Co, said it had found another radiation hot spot at the facility.
The government is set to announce on Tuesday a package of measures to deal with the crisis at the Fukushima plant, which was wrecked by a massive earthquake and tsunami in March 2011.
The public funds will amount to as much as 50 billion yen ($503.25 million), Japanese media reported on Tuesday.
This would include 32 billion yen to create a massive underground wall by freezing a perimeter of earth around the damaged reactors to contain groundwater flows, and 15 billion yen to fix a system meant to drastically reduce radiation levels in the contaminated water.
The government would tap about 20 billion yen in budgetary reserves for this fiscal year, media reported, citing unidentified government sources.
The government of Prime Minister Shinzo Abe, which faces a decision on Saturday by the International Olympic Committee on Tokyo's bid to host the 2020 summer Olympics, is rushing to address criticism that Tokyo Electric, or Tepco, has bungled the response to the nuclear disaster.
"Tokyo Electric has been playing a game of whack-a-mole with problems at the site," Motegi said in a televised interview late on Monday, referring to a popular amusement park game.
He said the Fukushima problems should not have any impact on the Olympic bid, in which Tokyo is competing with Madrid and Istanbul.
After a recent spike in overseas alarm at the problems at Fukushima, the Japanese government is "trying to cool the international media off prior to the Olympics decision", Mycle Schneider, an independent nuclear energy analyst based in Paris who frequently visits Japan, said by email.
"NO CAUSE FOR WORRY"
Measurable radiation from water leaking is confined to the harbour around the plant, Motegi said, and there should be no impact on other countries because the radiation will be so diluted by the ocean that it is not an environmental threat.
"There is no cause for athletes or visitors to Tokyo to worry," the minister said.
Last month, China said it was "shocked" to hear that contaminated water was still leaking from storage tanks and urged Japan to give timely and accurate information.
Tepco is storing enough contaminated water to fill more than 130 Olympic-sized swimming pools, mostly in hastily built tanks that officials have said may spring further leaks.
The planned measures are daunting. Freezing earth to block water flows is a technology commonly used in digging subway tunnels, but it is untested on the Fukushima scale and the planned duration of years or decades. The decontamination technology has repeatedly suffered from glitches.
The planned government intervention still represents only a tiny slice of the response to the Fukushima crisis, which is expected to take decades and rely on unproven technology.
The water-containment measures do not address the full problem of water management at the crippled plant, do not remove uncertainty about the fate of Tepco, Japan's largest power company, and do not address the much bigger problem of decommissioning the plant. The most sensitive job of removing spent fuel rods is to start in coming months.
The government's planned announcement, at a Tuesday meeting of a disaster task force, will come just hours after Tepco said patrolling workers found a new area of high radiation near storage tanks. Those tanks are holding water that became contaminated after it was washed over melted fuel rods.
The Fukushima Daiichi power plant north of Tokyo was devastated by a tsunami on March 11, 2011, that resulted in fuel-rod meltdowns at three reactors, the worst nuclear disaster since Chernobyl in 1986.
Tepco has been pumping water into the reactors to keep the damaged cores and stored fuel from overheating. That emergency step has created a secondary crisis of how to manage the contaminated water that is pumped back out.
Workers had found no signs of fresh radiation leaks but the company said a radiation reading on the ground near the newly found hot spot would expose a worker in just one hour to the safety limit Japan has set for exposure over five years.
No precise reading was given since workers were using instruments that only recorded radiation up to 100 millisieverts an hour. Tepco said the reading exceeded that level.
Tepco said last week radiation near a different tank spiked 18 times higher than the initial reading, a level that could kill an unprotected person in four hours.
As much as 300 tonnes of highly radioactive water was found to have leaked from another tank last month. ($1 = 99.3550 Japanese yen) (Reporting by Sumito Ito and Mari Saito; Additional reporting by Aaron Sheldrick; Writing by Bill Mallard; Editing by Paul Tait)