Record oil prices have forced the Malaysian government to pay nearly a billion dollars in unforeseen fuel subsidies, a minister said.

Second finance minister Nor Mohamed Yakcop said the extra subsidy payment of RM3.5 billion (US$956 million) had also nearly undone RM4.4 billion in savings after Malaysia imposed stiff fuel price increases.

"Yes, it has almost been wiped out," he was quoted as saying by the state Bernama news agency.

World oil prices reached new peaks yesterday, above US$74.0 in London and US$72.0 in New York owing to mounting tensions over Iran's nuclear programme and fears of gasoline shortages in the United States.

Malaysia had imposed its highest-ever fuel price hikes in February, citing rising oil prices, and pledged to use the cost savings to boost the country's mediocre transport system.

However, the oil price in the world market was US$60.0 a barrel when the government raised petrol prices, said Bernama.

Nor Mohamed reiterated government pledges that it would not rise oil prices again this year and said there was still enough cash to carry out infrastructure projects.

"We have contingency funds," he said.