At the critical moment, Li San threw his dagger to help Wu break the encirclement.
He could have chosen to throw the dagger at Watanabe Ryosuke, taking the chance to injure the opponent, but if he did, Wu would end up either dead or disabled.
Just then, Wu's left arm was hanging down as his waist turned, seeming to be gathering power. Li San saw all these details—he discerned that Wu intended to block the blade with his left arm and then take the opportunity to close in on his adversary.
Watanabe Ryosuke's blade was fast and sharp; using an arm to block would inevitably lead to amputation, and closing the distance might not be successful due to the severe pain slowing his movements. With only a slight change in blade direction and a dragging move, Watanabe could disembowel Wu.
Thus, Li San chose to throw the dagger; Wu had previously intercepted two of Watanabe Ryosuke's strikes for him, and now it was his turn to intercept this strike for Wu.