The hike would come into effect from midnight on Thursday.

The announcement was made after the meeting of the Cabinet Committee on Political Affairs (CCPA) here.

Communist Party of India-Marxist (CPI-M) Politburo member Sitaram Yechury said that the Left parties were not happy with the government's decision to hike fuel prices.

This is a part of government's efforts to mitigate the spurt in global oil prices.

The increase in fuel prices is likely to benefit oil companies by a whopping Rs 840 crore (Rs 8.40 billion).

Earlier, crude oil prices had touched an all-time high of 100 dollars a barrel thus triggering fears of more under-recoveries by oil Public Sector Undertakings (PSU).

Residents of the capital today reacted with dismay to the Central Government's announcement of a hike in fuel prices from midnight.

While Petroleum and Natural Gas Minister Murli Deora insisted that the hike was not too steep, and added that an adjustment had been made keeping the common man's interests in mind, residents of Delhi like Satpal and Manoj Verma thought otherwise.

Satpal said: "For a person with meager means, a Rs.2 hike will hurt."

Verma said: "The effect would not be on the public transportation system, it would be on the pocket of the common man. But people will continue to use their personal vehicles, they will continue to spend money on fuel despite the price hike, after all the public transportation is not very good."

India has raised prices of petrol and diesel by Rs.2 and Rs.1 respectively for the first time in 20 months to ease the losses of state-run oil firms squeezed by a surge in global crude oil prices while having to sell fuels cheaply.

The decision to raise fuel prices was taken by the Cabinet Committee on Political Affairs (CCPA) at Prime Minister Dr. Manmohan Singh's Racecourse Road residence this morning.

So far, State-controlled oil firms have had to sell widely consumed fuels at a discount to protect consumers and to curb inflation.

The government did not increase prices in 2007 even though crude rose by over 50 percent in the year and topped 100 dollars.

Reacting to the hike in the prices, shares in the Indian state-run-oil firms rose with top refiner Indian Oil Corp extending its gains as much as
10 percent.

India imports about two-thirds of its crude consumption.

The government had been postponing the decision in view of its concerns of its impact on elections due this year and next.

A week ago, Left Front leaders, who provide key outside support to the Manmohan Singh-led UPA Government, had stepped up pressure to stall the hike of petroleum prices, asking the government to restructure the tax structure, re-impose capital gains tax and set up a Farmers Debt Relief Commission.

"Rather than increasing the retail prices of petrol products, the government should initiate the long-pending restructuring of the indirect tax structure on petroleum," CPM General Secretary Prakash Karat had told the media then. 

Left parties on Thursday called for a nation-wide agitation against a government decision to hike petrol and diesel prices.

Left leaders claimed that the UPA Government, which their front crucially supports from the outside, had ignored their suggestions to cut excise and customs duties to minimise burden on the people.

"We are utterly disappointed by the decision," CPM Politburo member Sitaram Yechury said in New Delhi.

The Communist Party of India, the Revolutionary Socialist Party and the Forward Bloc also protested against the hike, which takes effect from midnight tonight, saying that collective suggestions by it have not been considered by the government.

"The CPI is completely opposed to the decision which will have a cascading effect on the already overburdened common man who has been hit badly by the high prices of all essential items," party's National Secretary D Raja said.

RSP leader Abani Roy said the government "which has come to power with the slogan of the 'aam aadmi' has completely ignored the people. The people should rise against this decision".

He said Finance Minister P Chidambaram was "not at all caring for the people and the decision reflects his adamant attitude".

Forward Bloc leader G Devarajan said the government should immediately set up a Price Stabilisation Fund to control the increase in prices of petrol products.

The Cabinet Committee on Political Affairs on Thursday decided to raise petrol and diesel prices by Rs.2 and Re 1 a litre respectively from midnight.  (ANI)