Petrol and diesel prices would go up by 1,000 yuan (145 dollars) per tonne while aviation kerosene would increase by 1,500 yuan a tonne, the National Development and Reform Commission announced late Thursday, according to Xinhua.

Retail prices of petrol and diesel would be hiked to 6,980 yuan and 6,520 yuan a tonne, up more than 16 percent and 18 percent.

The rises would mean an increase of 0.8 yuan and 0.92 yuan a litre (44 cents and 51 cents a US gallon) for petrol and diesel, Xinhua said.

Prices were raised to ensure supplies by reducing the gap between soaring international crude prices and state-set domestic oil prices, the commission said.

Electricity prices would also be raised by 2.5 cents per kilowatt hour from July 1 but urban and rural residents and the farming and fertiliser production sectors would be exempt, as would the three provinces hit by last month's quake, it said.

The Chinese government, which has made taming inflation its top economic priority, imposes strict controls on energy prices due to fears that higher fuel or power costs could fan inflation already near 12-year highs.

But the centralised pricing system and rising international crude costs have left domestic oil majors such Sinopec saddled with huge refining losses and led to mounting calls for the government to loosen its price controls.

The price of oil has overtaken 130 dollars a barrel, and has even flirted with 140 dollars, with some analysts saying the possibility of hitting 200 dollars a barrel is not far away.

China accounts for around 40 percent of the growth in global oil consumption to fuel its rapidly expanding economy.

Investment bank China International Capital Corporation, or CICC, said a reform in the energy pricing system would benefit not only China but the whole world.

"The international crude oil price largely depends on China's energy pricing policy because China accounts for around 40 percent of the increment of global oil consumption," it said in a research note.

CICC cited a detailed simulation which showed what would happen if China raised its oil product prices by 50 percent around mid-2008 to put the domestic refining gross profit margin in line with international levels.

Under this scenario, international oil prices would decline to 110 dollars per barrel by the end of 2008, and 90 dollars one year later.

By contrast, if China continued to control domestic oil product prices, international crude oil price would hit 200 dollars per barrel, according to the simulation.

While seeking to reduce its oil subsidies, the government is likely to be wary about the effect of higher fuel prices on inflation and possible public discontent.

China's consumer price index rose by 7.7 percent last month, easing only slightly from April's 8.5 percent and still hovering near 12-year highs.

Vice President Xi Jinping is due to attend a crucial international energy conference in Saudi Arabia at the weekend in a bid to look for a solution to the challenges caused by soaring oil prices.

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