Kuala Lumpur  - Malaysia has lifted a ban on the sale of fuel to foreign cars following a massive 40 per cent hike in the price of gasoline, reports said Thursday.

Prime Minister Abdullah Ahmad Badawi announced Wednesday that the price of petrol would be raised to 2.70 ringgit (87 cents) a litre from 1.92 ringgit (61 cents) from Thursday.

The move, which reduces the government's massive subsidy bill, sparked a mad rush of drivers to fill up before midnight Wednesday at petrol stations nationwide.

Following the price hike, domestic trade and consumer affairs minister Shahrir Abdul Samad said a newly-enforced ban on the sale of fuel to foreign-registered vehicles at the country's border areas with Thailand and Singapore would no longer be enforced.

"With the decision announced by Prime Minister Abdullah Ahmad Badawi to increase fuel prices, those filling up the tanks of foreign-registered cars are no longer enjoying subsidies accorded by the government to Malaysians," he was quoted as saying by the Star daily.

"What they will be getting are only discounts so there is no longer a need to impose a ban," Shahrir said.

Abdullah also announced that the government will also give a yearly cash rebate of 625 ringgit (200 dollars) per year to owners of cars with an engine capacity of 2,000 cc or less to offset their burden from the massive hike.

The money will be distributed to owners through post offices.

Abdullah said diesel prices will rise by 1 ringgit to 2.50 ringgit (80 cents) per liter, a 67 per cent increase.

The last time the government raise fuel prices was in February 2006. (dpa)