But locals could still enjoy some form of subsidies, which would be less than the present subsidies that have made Malaysia's petrol prices among the cheapest in the region.

Domestic Trade Minister Shahrir Samad told reporters yesterday that retail cost of the fuel 'will depend on global market prices'.

Petrol is currently sold at RM1.92 (80 Singapore cents) per litre at the pump. Without any subsidy, its price could jump to around RM3 to RM4.

Diesel is sold at stations for RM1.58 a litre. Unsubsidised diesel would cost more than RM2 a litre.

An anti-inflation committee meeting chaired by Prime Minister Abdullah Badawi yesterday thrashed out details of the subsidy plan which will need Cabinet approval today.

An announcement would be made today after the weekly Cabinet meeting, according to aides of Datuk Seri Abdullah and Datuk Shahrir.

The new subsidy plan is part of moves to cut the spiralling bill for fuel subsidies, which Mr Shahrir said will cost RM56 billion this year.

This is more than Malaysia's annual development funds of about RM40 billion, which has prompted officials to argue that the money spent on subsidies would be better spent on building roads and schools.

Observers warn that fuel price increases could spark anger and protests from a population used to subsidies and heavily dependent on vehicles due to the country's poor public transportation system.

But Mr Shahrir said that the government would continue to help lower-income groups possibly through cash handouts and a fuel quota system.

Analysts have also warned of the negative economic impact of the sudden lifting of fuel subsidies.

'For sure, you're going to see inflation shoot higher from August onwards because it will affect prices across the board,' Mr Gundi Cahyadi, economist with economic think-tank IDEAglobal, told Associated Press.

'Consumer spending and business investment will slow down if this happens.'

Opposition Parti Keadilan Rakyat party secretary-general Salehuddin Hashim told The Straits Times that a total withdrawal of fuel subsidy could lead to mass panic and street protests.

There are also concerns about the knock-on effects. Last July, a pay rise for civil servants of up to 35 per cent, saw businesses pushing up the prices of goods.

Plus, each time oil prices were raised in the past, the cost of everything from roti prata to bus fares as well as inner-city parking went up in tandem.

'People are expecting a gradual lifting of fuel subsidies, not doing it at one shot,' said Mr Cahyadi. 'It seems to be extreme.'

Meanwhile, ahead of the new subsidy mechanism, Malaysia has announced the ban on sale of petrol to foreigners within 50km of its borders.

The ban kicked in on Monday along its northern border with Thailand, while a similar ban along its southern border with Singapore will take effect next Monday.

hazlinh@sph.com.sg