BACKGROUND: Recent studies indicate an urgent need to take action against mental health issues during the COVID-19 pandemic. However, the association between larger-scale environmental factors such as living conditions and mental health problems during the pandemic is currently unknown. METHODS: A nationwide, cross-sectional internet survey was conducted in Japan between August and September 2020 to examine the association between urbanization level and neighborhood deprivation as living conditions and COVID-19 case numbers by prefecture. Prevalence ratios (PRs) for severe psychological distress, suicidal ideation, and new-onset suicidal ideation during the pandemic were adjusted for potential confounders. RESULTS: Among 24,819 responses analyzed, the prevalence of mental health problems was 9.2% for severe psychological distress and 3.6% for new-onset suicidal ideation. PRs for severe psychological distress were significantly associated with higher urbanization level (highest PR = 1.30, 95% CI = 1.08-1.56). PRs for new-onset suicidal ideation were significantly associated with higher urbanization level (highest PR = 1.83, 95% CI = 1.37-2.45) and greater neighborhood deprivation (highest PR = 1.35, 95% CI = 1.06-1.72). Severe psychological distress and new-onset suicidal ideation were significantly more prevalent when there was higher urbanization plus lower neighborhood deprivation (PR = 1.34 [1.15-1.56], and 1.57 [1.22-2.03], respectively). CONCLUSION: These findings suggest that it is not the number of COVID-19 cases by residence area but higher urbanization level and greater neighborhood deprivation (lower neighborhood-level socioeconomic status) that are associated with severe psychological distress and new-onset suicidal ideation during the pandemic. These findings differ in part from evidence obtained before the pandemic.