"The increase is... to cater for the rising cost of implementing existing projects as a result of the rising prices of building materials," he said.

Abdullah said it would also cover regional development programs which have been rolled out in poorer parts of the country, as well as boosting food production as commodity prices soar.

"Priority will be given to people-centric projects -- projects which provide amenities and which impart direct benefit to the people, such as water supply, electricity,... poverty eradication and public safety," he told parliament.

Abdullah defended his government's decision to hike petrol prices by 41 percent earlier this month, in view of spiralling global oil prices which had sent the cost of subsidies skyrocketting.

"The reality is that our nation faces difficult challenges, caused by external factors which are outside of our control," he said.

"In the face of these difficulties, the government must have the courage to make decisions and initiate changes that will preserve public prosperity and national interest in the long term."

Sulaiman Mahboob, head of the nation's Economic Planning Unit, said the government would continue to reduce fuel subsidies so that its expenditure was "systematically and gradually reduced".

Mahboob confirmed there would be major cuts to planned infrastructure projects.

"There will be no allocation for the Penang Monorail and the Penang Outer Ring Road under the 9th Malaysian Plan," he said of the projects which were estimated to cost the government about 3.5 billion ringgit.

Mahboob said that of the new 30.0 billion ringgit allocation, 10.0 billion will be spent on various regional development programs while 3.0 billion will go to food security and 2.0 billion on rural infrastructure.

Impoverished Sabah and Sarawak states on Borneo island will receive 2.0 billion ringgit, 3.0 billion will go to a strategic investment fund and another 3.1 billion is to be spent on information-technology projects.

The government will also allocate 1.5 billion ringgit to public transportation with another 1.0 billion to be spent on low- and medium-cost housing, he said.

Malaysia has been hit badly by the rising cost of fuel and food, which Abdullah said could soar from a 22-month high of 3.8 percent in June to as high as 5.0 percent this year.

On Tuesday, Malaysia's Second Finance Minister Nor Mohamed Yakcop said the government was maintaining its growth forecast of between five and six percent for 2008, down from 6.3 percent last year.