KEPALA BATAS, Malaysia--Malaysia's fuel subsidies cost the state about 40 billion ringgit ($12.44 billion) in 2007, Prime Minister Abdullah Ahmad Badawi said on Sunday, as crude oil prices hover around $100 a barrel.

Malaysia has some of Asia's lowest gas and diesel prices, fixing them well below market rates and paying subsidies to fuel retailers to compensate them.

But the government has said fuel subsidies have become too much of a burden on the budget and that it wants to free up funds for development.

"We know that the price of oil has increased. We know for a fact that at this moment, our subsidy has gone up to 40 billion (ringgit)," Abdullah told reporters after filing nomination papers from northern Penang state.

Rising cost of living has become the biggest issue in Malaysian elections with many voters complaining about surging costs of food and fuel. Malaysia will hold general elections on March 8.

"We are trying our best to make sure that it will not affect the people too much," he said. "We are still enjoying relatively low prices."

Malaysian pump prices for gas, at just above 50 U.S. cents a liter, are one of the lowest in Asia.

Malaysia is a net oil exporter but its production has been declining with daily output of crude and condensates falling 4.4 percent to 506,500 barrels for the year to end-March 2007.