The man received 46.3m yen ($357,400; £287,000) in his bank account - money from a Covid relief fund that was supposed to be shared among 463 people.
He initially said he would co-operate with officials, but has since vanished.
The southern town of Abu in Japan's Yamaguchi Prefecture is suing the man and also considering criminal action.
The blunder happened when the 463 low-income households were meant to receive 100,000 yen ($770; £620) each as part of a government scheme to ease financial strain caused by the pandemic.
But on 8 April, all of the funding - 46.3m yen - was accidentally deposited into the man's personal bank account.
An investigation has since found that he withdrew 600,000 yen every day for about two weeks, local media reports.
When authorities finally contacted him, he said he no longer had the money.
"I've already moved the money. It can't be returned," he is quoted as saying. "It cannot be undone any more. I will not run. I will pay for my crime."
However he has now disappeared.
Speaking to media on Tuesday, the man's lawyer said his client had been co-operating with authorities and agreed to be interviewed by prefecture police. But since the lawsuit was filed against him on 12 May, officials have not been able to contact him.
The man had used his smartphone to gamble away all of the money through online casino sites, his lawyer explained.
"I don't currently have the money and I don't have anything with property value at hand. It's actually difficult to return it," the lawyer quoted him as saying, according to The Asahi Shimbun.
The Abu Municipal Government is suing the man for 51m yen, including legal fees.
Mayor Norihiko Hanada has told residents he is "deeply sorry" for the mistake and that his office "will do our utmost to take back the large amount of public money".
Another wave of 100,000 yen payments has been issued to the eligible households.
-- Courtesy of BBC News