Egypt has approved a draft law to allow sovereign Islamic bonds (sukuk), the country's finance minister said on Wednesday, as the government searches for new ways to finance an unsustainable budget deficit.

The Islamist-led administration had amended the original draft of the law following criticism from religious scholars. The legislation still needs to be approved by the upper house of parliament, where Egypt's ruling Islamists hold a clear majority.

"The cabinet today agreed to the draft sukuk law," minister Al-Mursi Al-Sayed Hegazy told reporters.

He said demand would be strong for the bonds and that in recent days the Islamic Development Bank, a multilateral institution, had said it could be ready to buy around $6 billion of them.

Egypt has never issued a sovereign sukuk. An international issue would help the government replenish dangerously low foreign reserves.

The Muslim Brotherhood, which controls Egypt's presidency, also wants to promote sukuk for religious reasons.

Hegazy, an economist who is an expert on Islamic finance, said he expected the new law to attract fresh investment to Egypt.

"I imagine that Egypt, with its great human and material resources, will attract many investors," said Hegazy, who took up his post as finance minister earlier this month.-Reuters