India has cancelled the licences of nearly 4,000 petrol stations and cooking gas outlets because of allegations that they may have be given to people close to the ruling party.

Prime Minister Atal Behari Vajpayee said, in a statement, that he had ordered the Ministry of Petroleum and Natural Gas to cancel all licences allocated since January 2000.

The move came after a series of newspaper reports alleging members of Mr Vajpayee's Bharatiya Janata Party (BJP), its allies and their relatives were given more than half of the 3,850 dealerships allocated by state-run companies.

The allegations caused uproar in parliament on Friday and again on Monday, forcing the sittings to be adjourned.

The Congress party and other opposition groups have demanded the resignation of the Petroleum Minister Ram Naik.

Mr Naik has denied any wrongdoing and has refused to resign.

<\STRING_ENCODING><\STRING_ENCODING>Earlier scandal

The prime minister's statement said that the cancelled licenses would now be "auctioned on the basis of competitive bidding".

The licences were originally issued by the state-run oil firms on the recommendation of dealership selection boards headed by retired judges.

This system was set-up after an earlier scandal involving a petroleum minister - from the then ruling and now the main opposition Congress party - who had given licences to his friends and relatives in the early 1990s.

India's oil and gas sector is dominated by state-run firms Indian Oil, Hindustan Petroleum and Bharat Petroleum.