Police were called to Chinese petrol stations overnight and Government officials stood guard at the pumps in Beijing, after angry motorists queued to fill up on learning that petrol and diesel prices were to rise by 18 per cent.

The surprise decision by the Chinese authorities to remove subsidies prompted drivers to head to petrol forecourts but they were frustrated as many garages refused to serve them until after the price increase took effect at midnight.

Prices for gasoline and diesel fuel rose unexpectedly by 1,000 yuan ($145) per tonne each, while aviation fuel was increased by 1,500 yuan a tonne.

China's fuel subsidies have helped support the country's growing demand for the commodity but it was thought the subsidies would remain in place until after the Olympics, because the authorities have no desire to trigger social unrest.

Oil prices fell $4 in overnight trade to $132 in reaction to the surprise news although the oil price steadied and even rose in early trading on Friday.

Other Asian economies, including India and Indonesia had already bowed to the pressures of near $140 oil by scaling back subsidies and raising fuel prices.

"Global crude prices have been rising sharply and Chinese domestic fuel prices have lagged behind. The price difference has highlighted the contradiction between demand and supply," Chinese state television said, quoting the country's National Development and Reform Commission.

Electricity tariffs will also go up, although some residents and some parts of agricultrural production will be exempt from the price rise.

The 16.7 per cent increase in gasoline takes the pump rate to about 75 US cents a litre, still a quarter cheaper than in the United States and about one-third what British motorists pay. Prices have doubled since 2003, but crude has more than quadrupled.

The benchmark oil futures contract, New York’s light sweet crude for July delivery, was 23 cents higher at $132.16 per barrel on Friday morning. Brent North Sea crude for August delivery rose 45 cents to $132.45 following a drop of $4.44 to settle at $132 in London on Thursday.

Analysts said that the move by the world’s second biggest oil consumer was important, but differed on its longer term impact on soaring oil prices, which hit nearly $140 dollars this month.

“I think it’s very significant,” Dave Ernsberger, Asia director of Platts, the energy information provider, said. “It is going to eat into demand. I’m pretty sure of that."

Victor Shum, an analyst at Purvin and Gertz energy consultancy in Singapore, said the impact from decreased demand for oil in China was likely to be small as higher prices would stimulate production. “The negative impact in demand growth in China may be more than compensated by increased supply,” Mr Shum said.

Experts have said China’s booming economy has up to now been a key driver of the world’s growing appetite for oil.

Times Recommends

• Food prices rise 8.3% on soaring fish and meat
• Car sales crash as economy hits skids
• House prices fall but Bank leaves rates on hold