China, world's second biggest oil consumer, has announced a hike in energy prices by up to 18 percent to tame voracious domestic demand and bring relief to its refineries reeling under losses but fraught with risks of stoking the already rising inflation.

In the first increase in last eight months and highest in recent years, the government-regulated retail prices of gasoline were raised by 16 percent and diesel 18 percent, a step that is expected to impact world oil market where crude oil prices had touched $140 per barrel.

Beginning midnight Thursday night, the benchmark gasoline and diesel prices went up by 1,000 Yuan ($144.9) per tonne, the state media said, quoting the country's top economic planner, the National Development and Reform Commission (NDRC).

The aviation kerosene price was also up by 1,500 Yuan ($218) per tonne but the prices of natural gas and liquefied petroleum gas were left untouched.

The commission said the oil price adjustment was made to ensure supplies in the country by reducing the gap between continuously rising international crude prices, especially since February, and the state regulated domestic oil prices.

Government-controlled oil prices in the domestic market was blamed for shortfall of supplies as some refineries cut back on or stopped processing to avoid losses, the state-run Xinhua News Agency said quoting an unidentified official.

"The increase in the prices will benefit domestic oil companies," NDRC said.

Squeezed in between soaring international oil prices and relatively low regulated price at home, China's oil refineries had suffered huge losses. The country's largest refinery, Sinopec, incurred a loss of more than 20 billion Yuan in its refining business in the first quarter of this year.

The largest oil company PetroChina saw its net profit plummet by more than 30 percent in the first three months, with losses in its refining wing being the biggest contributor.

But, worried by the price rise, the government had been holding back any move to raise the retail oil prices as the Consumer Price Index (CPI) had reached 8.5 per cent in April, hovering near a 12-year monthly high of 8.7 percent in February. The pressure eased in May when the CPI was reported at 7.7 percent.

China's move to increase the retail price of gasoline and diesel also comes ahead of the crisis meeting of the world's biggest oil producers and consumers in Jeddah in Saudi Arabia on Sunday to discuss the unprecedented rise in crude prices, part of which was blamed by some on the voracious demand and subsidies in energy-hungry China.

Anxious not to cause more burden on the people already hit by rising prices, the Commission said more subsidies would be offered to farmers, public transport, low-income families and taxi drivers to cushion the crunch of price rises.

The commission also said fares for passenger travel by rail, urban and rural public transport and taxis would remain unchanged after the rise.

In tandem with the increase in the prices of gasoline and diesel, China also announced increase in electricity tariff by 4.7 percent on average.

The tariff would go up by 2.5 cents per kwh starting from July one, the Commission said, adding the move was in response to rising costs of the country's power plants, including increasing power-coal prices and investment in grid upgrading.