TOKYO, Jan 11 (Reuters) - Nearly 85% of the companies listed on the top section of the Tokyo Stock Exchange will be permitted on its new "prime" market in an April rebranding, the bourse said on Tuesday, potentially diluting its goal of creating a more prestigious main board.

In Japan's biggest overhaul of its equity markets in a decade, the TSE will adopt tougher listing criteria for its top category, hoping to highlight companies with strong profitability whose governance meets global standards, with the aim of luring more foreign investors.

Of 2,185 firms now listed on the main exchange, 1,841 have chosen the prime market, but 296 firms have not met the criteria, said the TSE, which is owned by Japan Exchange Group Inc..

Companies that fall short of the new rules can still stay on the prime market in an unspecified transition period by submitting improvement plans, a provision some investors say waters down the reshuffle.

The move is part of a long policy drive begun under former Prime Minister Shinzo Abe to win foreign investors back to Tokyo's market, which Japan fears is increasingly overlooked by global institutional asset managers.

In the April 4 re-organisation, the exchange will reshuffle its four existing markets into three, designated as "prime", "standard" and "growth". (Reporting by Makiko Yamazaki and Junko Fujita; Editing by David Dolan and Clarence Fernandez)