The Prime Minister Manmohan Singh-headed Cabinet Committee on Political Affairs (CCPA) took the decisions here.

The panel, comprising of ministers from allies of the United Progressive Alliance (UPA), was expected to meet on Tuesday evening, but the meeting was postponed.

The steep hike in diesel prices is expected to affect a wide range of transportation ranging from locomotives to heavy duty trucks.

Proponents in government of raising diesel prices have pointed out that a large chunk of high-priced automobiles in the country also run on diesel, thereby resulting in a subsidy for the rich

Diesel and cooking fuel prices have not been revised since June 2011 even as oil firms sell deregulated petrol at a price which is Rs.6 per litre less than its actual cost.

Citing rising global crude oil prices and devaluation of rupee, Oil Minister S. Jaipal Reddy had said Wednesday that a hike in diesel, LPG and kerosene prices was "unavoidable".

"However painful and difficult the increase in price of oil product may be, increase is unavoidable," Reddy had said.

According to Reddy, the impact of rising crude oil prices and fall in the rupee's value would mean that state-owned oil firms would end the fiscal with a huge Rs.188,000 crore revenue loss on selling fuel below cost.

State-owned oil firms are losing around Rs.550 crore per day on the sale of regulated diesel and cooking fuels and around Rs.16 crore per day on petrol.

Oil Marketing Companies (OMCS) have been selling diesel at a loss of Rs.19.26 per litre, kerosene at a loss of Rs.34.34 per litre and domestic LPG for a loss of Rs.347 per 14.2 kg cylinder.