It proposed raising the rating from "an anomaly" to a "serious incident".
The operator of the plant said about 300 tons of contaminated water has leaked from one of hundreds of steel tanks around the wrecked Fukushima Dai-ichi plant which was crippled by the 2011 earthquake and tsunami.
Tokyo Electric Power (TEPCO) has not discovered how or where the water leaked, but suspects it did so through a seam on the tank or a valve connected to a gutter around the tank.
The watchdog, the Nuclear Regulation Authority, proposed at a meeting yesterday to raise the rating of the leak to level three from an earlier level one on an International Nuclear and Radiological event scale of eight.
The watchdog plans to consult the UN nuclear regulatory agency, over if it is appropriate to use the INES evaluation scale on the badly wrecked Fukushima plant.