India has raised petrol and diesel prices by 7% in response to a surge in global oil prices.
The price hike is the second this year
The decision was made at a cabinet meeting held on Tuesday.
India's centre-left coalition government has been under pressure to increase prices to stem losses at state-owned oil companies.
But the move sparked calls for protests from the government's Communist allies and the main opposition Bharatiya Janata Party (BJP).
Oil minister Mani Shankar Aiyar said he hoped the increase, the second in a year, would ease pressure on the state-owned oil companies.
"I think we will be able to substantially recover the projected losses but a great deal would depend on what exactly happens with the international oil prices," he told journalists in Delhi.
But the communist parties opposed the move.
"The rise in petrol and diesel prices announced by the government could have been avoided if the government had listened to the alternative suggestions given by the left parties," the Communist Party of India said in a statement.
The BJP also condemned the hike.
"When the international prices rise, we expect the government to cut its share of profit and its revenue earnings and share the burden of the increase with the common man," party spokesman Arun Jaitley said.
The government however has not changed the price of cooking gas and kerosene, which is used as a cooking fuel by the poor.
But many Indian consumers are already worried about the impact of the price rise.
"I guess the government has no option but it is going to affect the consumers terribly," Reuters news agency quoted one consumer, Reena Motihar, as saying.
"We all will have to be very cautious as to how we use our cars now because it will be very expensive to run a car."
India imports more than 70% of its crude oil needs which are refined and retailed by the state-owned oil companies.