The price of a litre of petrol will be raised by 78 sen to 2.70 ringgit ($0.84) while diesel will go up by one ringgit to 2.58 ringgit ($0.80) per litre, Prime Minister Abdullah Badawi said, adding that a new electricity tariff structure will take effect from July one.

While the increase in prices would still keep them as among the cheapest in Asia, the move is expected to lift the inflation rate to as much as 5 per cent.

It is the first time in two years that electricity and fuel prices have been increased. Fuel prices had not been changed in the country since February 2006.

"We cannot naturally keep subsidising at the current rate," said Abdullah. The government would extend an annual cash rebate of 625 ringgit ($201) per year to owners of cars with engine capacity of up to 2,000 cc and pick up trucks and jeeps of up to 2500 cc to offset their burden from the price hike, he said.

"Owners of private motorcycles of engine capacity of up to 250 cc will be paid a cash rebate of 150 ringgit per year," he said.

The prime minister said the cash rebate would be given to the owners of the cars and motorcycles when they paid or renewed their road tax.

Domestic Trade and Consumer Affairs Minister Shahrir Abdul Samad had said earlier that Malaysia's long term plan was to increase the price of petrol to market price maybe by August.