Libya plans to limit the costly subsidies its citizens enjoy when buying motor fuel - much of which is smuggled into Tunisia for resale at higher prices - by introducing a "smart card" system like one newly implemented in neighbouring Egypt.

The North African country's economy is burdened by subsidies for items from petrol to bread and airline tickets, which along with with public salaries, eat up more than half of the budget.

The weak interim government has been reluctant to cut the subsidies, introduced by former leader Muammar Gaddafi to discourage opposition, as it is still struggling to impose authority in a country awash with arms.

But with a nie-month shutdown of major oilfields and ports due to political unrest and local disputes drying up crude oil export revenues, the government is proposing a fuel card system to parliament, cabinet spokesman Ahmed Lamin said on Thursday.

When the system is in place citizens will be able to buy a limited amount of subsidised fuel, and will have to pay a normal, market price for any extra quantities.

The impetus for the decision came from a surprise rise in fuel use. Gasoline and diesel consumption rose by 15 percent between 2012 and 2013, more than the usual 3-7 percent rise.

"The extra rise is due to an increase of smuggling, mainly to Tunisia...The rise in the number of cars does not justify this 15 percent increase," Lamin said.

Fuel smuggling is common across North Africa and its extent has increased in the chaotic aftermath of the Arab Spring.

Egypt and Algeria have also been losing more subsidised fuel to smugglers. Egypt has been aggressively cutting off smuggling routes, particularly through tunnels to the Palestinian enclave of Gaza.

In Libya, what had been a small-scale trade, involving a few cars loaded with petrol, has grown into a smuggling industry run by "gangs" trucking large quantities across its porous borders, Lamin said.

Libya normally meets most of its domestic needs with its 380,000 barrels per day refining capacity. But in the last nine months, the closure of its largest plant and on-off opening of its second biggest, at Zawiya, as a result of unrest, has forced the country to step up fuel imports, particularly from Italy.

Tripoli expects to save 800 million Libyan dinars ($650 million) annually in subsidy costs by cutting out smuggling, growing to around 1.3 billion dinars, after putting caps on subsidised consumption.

"It's a very big burden on the budget and this is only one of the subsidised commodities. Food like flour, (cooking) oil are very very cheap here compared to other countries, so people are professional smugglers," Lamin said. -Reuters