TOKYO, Aug 3 (Reuters) - Some 166,000 households in southwestern Japan's Okinawa and Kagoshima prefectures were out of power Thursday morning as slow-moving Typhoon Khanun continued to bring heavy rain and gusty winds, prolonging the damage potential.

The storm in the East China Sea was heading northwest at a slow speed with gusts 222 kph (138 mph), according to the Japan Meteorological Agency. It was projected to change direction to move east towards the country's mainland through Tuesday, but its path was not determined, public broadcaster NHK said.

Two people were reported dead in Okinawa, a popular tourist destination some 1,600 km (1,000 miles) southwest of Japan's capital Tokyo, as of Thursday morning, NHK said. A total of 41 people in Okinawa and Kagoshima prefectures were injured, according to the Fire and Disaster Management Agency.

Naha Airport, located in Okinawa's capital city and the main gateway to the popular tourist destination, resumed operations on Thursday after shutting down for two days. Still, 304 flights were cancelled, the transport ministry said.

Local utility Okinawa Electric Power Co 9511.T said 160,040 households, or about a quarter of all houses covered, were experiencing power outages as of 10:36 a.m. Japan time (0136 GMT), according to its website.

In addition, power supply was down for about 6,550 households in Amami islands in Kagoshima prefecture, north of Okinawa, as of 9 a.m., according to Kyushu Electric Power 9508.T.

Typhoon Khanun also forced schools and businesses to shut in northern Taiwan on Thursday, with nearly 40 international flights being cancelled.