He told a parliamentary budget committee that he welcomed the award of the prize to Mr Liu, a proponent of political reform in China.
China has expressed fury at the award and censored reporting of it.
The government of Norway, where the Nobel prize is based, said China's reaction was "inappropriate".
China described Mr Liu as a criminal who had broken China's laws, and said the award was an insult to China's judicial system.Neighbours
"From the viewpoint that universal human rights should be protected across national borders, it is desirable" that Mr Liu be released, Mr Kan said in a response to questions by an opposition upper house lawmaker.
"I think it is important that human rights and fundamental freedoms, which are universal values, should also be guaranteed in China," Mr Kan said.
The prime minister did not issue any formal request for Mr Liu's release.
The comments from Japan's prime minister come soon after the two countries brought a tentative end to a damaging row over disputed territories in the sea between them.
Japan had detained a Chinese fishing boat captain who, it said, was trespassing in Japan-administered waters.
Some commentators supportive of China have portrayed the award as a conspiracy from the West to impose its values on China.
Japan's guarded comments risk provoking more anger from Beijing, analysts say.
China, meanwhile, has cancelled a series of meetings previously scheduled with Norway.
The cancellations include visits to Norway by members of China's Supreme Court and Public Security Bureau, and a study trip to learn about Norway's welfare state.
Visits to China by a senior Norwegian officials' delegation, the Norwegian fisheries minister and musicians involved in a planned performance have also all been cancelled.
"If this decision is the consequence of the awarding of the Nobel peace prize, we consider this an inappropriate reaction," Norwegian foreign ministry spokeswoman Ragnhild Imerslund told AFP news agency.
"We wish to continue our fruitful co-operation in all fields with China," she said.
Two Norwegian diplomats who attempted to visit Liu Xia, the wife of Mr Liu, were turned away from her home where she has said via Twitter that she was being held under "illegal house arrest".
It remains unclear whether she will be allowed to go to the Norwegian capital, Oslo, to collect the award on her husband's behalf.
Liu Xiabo was sentenced to 11 years in jail on subversion charges last December, after co-writing Charter 08, a call for political reform.
He has dedicated his Nobel Peace Prize to the victims of the Chinese government suppression of pro-democracy protests in Tiananmen Square on 4 June 1989.
The United States and the European Union have called for his release.