A cancellation would be another blow for organisers just days after they restarted test events, which had been on hold due to the pandemic, for the first time in more than a year.
The water polo test event will be cancelled because overseas officials are unable to come to Japan amid strict COVID-19 countermeasures, public broadcaster NHK said.
Some 600,000 Olympic tickets purchased by overseas residents will be refunded, as will another 300,000 Paralympic tickets, Toshiro Muto, the chief executive of the Tokyo 2020 organising committee told a news conference.
"People who are involved in the Olympics in some way may be allowed to enter the country, whereas regular visitors will not be able to," Tokyo 2020's Muto said.
Japan's borders are currently all but closed to foreign visitors, with Tokyo and other parts of the country under a state of emergency until at least February 7.
Japan last month said it would temporarily ban non-resident foreign nationals from entering the country after the detection of the new, highly infectious variant of the coronavirus.