Iran increased the price of gasoline by 25 percent Tuesday, trying to reduce subsidies in a decision likely to deepen dissatisfaction with the government of hard-line President Mahmoud Ahmadinejad.

Oil-producer Iran faces the same quandary that has sent prices at U.S. pumps soaring: Its lack of refinery capacity means it must buy gas on the world market.

Public discontent has been growing in Iran in recent months as housing prices have doubled and prices for basic goods such as vegetables have tripled since last summer.

Many drivers were surprised Tuesday morning to find gas prices had risen overnight to 38 cents a gallon from 30 cents, part of a major plan by the government to reduce state subsidies on petrol.

Interior Minister Mostafa Pourmohammadi said the price increase was made "in line with the budget law," the official IRNA news agency reported.

But Pourmohammadi said a decision to impose fuel rationing as of Tuesday has been delayed until June 5.

The decision to postpone rationing was apparently due to technical failures to distribute electronic smart cards drivers use to buy the rationed fuel at subsidized prices.

Under the rationing system, consumers will have to pay a higher price for any petrol they consume above a certain quota. The government is yet to set the quota level or the higher price.

Ahmadinejad has portrayed himself as a champion of working for the poor and swept to power in 2005 on a populist agenda promising to bring oil revenues to every family and tackle unemployment. Now he is facing increasingly fierce criticism for his failure to meet those promises.

Iran produces some 4.2 million barrels a day of crude oil and is the second biggest exporter in the Organization of Petroleum Exporting Countries.

But its refining facilities allow it to produce only around 151 million gallons of gasoline a year, so it has to import gasoline to meet increasing demand. Last year, Iran consumed 284 million gallons of gas, and the government has predicted 2007 consumption could exceed 303 million.