Lanka IOC, a fuel retailer which accounts for a third of the market, said it was increasing prices for diesel -- commonly used by public transport -- by 12 percent, and petrol up 11 percent.

The increases came after a seven percent price rise three weeks ago and will add to the upward pressure on inflation, already at a record high.

The island is in the grips of an economic crisis after the tourism sector, a key foreign-exchange earner, collapsed in the wake of the Covid-19 pandemic.

The government imposed a broad import ban in March 2020 in an effort to save foreign currency.

The country is now suffering widespread shortages, including fuel, electricity, automotive parts and cement, with supermarkets forced to ration staple foods including rice, sugar and milk powder.

The shortages pushed food inflation to 25 percent last month with overall inflation at 16.8 percent.

There was no immediate energy price revision by the state-run Ceylon Petroleum Corporation (CPC), but most of its pumps have been out of fuel for days.

Energy minister Udaya Gammanpila announced this week that he expected fuel shortages to ease in "days", but warned that a sharp price increase was necessary to retain the viability of the loss-making CPC.

Gammanpila said the CPC continued to haemorrhage cash and was already carrying debts exceeding $3.5 billion. The CPC loss for last year was $450 million, he added.

"Earlier, we were short of dollars to import oil. Now we don't have the rupees to buy the dollars," Gammanpila said.

Several thermal power stations, meanwhile, have closed with the electricity utility extending daily power cuts to five-and-half-hours a day from Friday.

Three international rating agencies have downgraded the island since late last year on fears it may not be able to service its $35 billion sovereign debt.

Sri Lanka has also sought more loans from Beijing to help repay its existing Chinese debt, which accounts for about 10 percent of the country's external borrowings.

Authorities have borrowed heavily from China for infrastructure projects in the past, some of which ended up as costly white elephants.