will gradually increase state-controlled domestic fuel prices tenfold in 2006 to meet International Monetary Fund demands, an Iraq official said on Monday.

The move is likely to spark public protests. Iraq already increased prices by 200 percent in December, igniting protests and creating a rift between the oil ministry and the government over external political pressure.

"We have to meet demands from the IMF, they said the prices should be equal to the prices in neighboring countries," another source in the oil industry said.

Iraq won a crucial loan accord with the IMF in late December and a $14 billion debt swap with private lenders.

The $685 million IMF standby credit arrangement was the fund's first ever with Iraq and is designed to support the economic program over the next 15 months.

Iraq defended the increase in December and said it was aimed at stopping smuggling of Iraqi oil to other countries and fighting the black market.

Former oil minister Ibrahim Bahr al-Uloum protested against the increase in December and was ordered to take one months leave by the prime minister. Uloum tendered his resignation, which was accepted in January.

Iraq has the world's third largest known oil reserves but decades of war, sanctions, under-investment and now widespread violence and sabotage have left it critically short of fuel. It has to import nearly half of all its gasoline