With a presidential election set for early next year, removing the subsidy would have been a politically sensitive move. Nigeria faces double-digit inflation in the wake of a weaker currency and fragile economic growth, which could further worsen if the subsidy was scrapped, analysts say.

Ahmed said in November the government planned to remove the subsidy by the middle of this year and replace it with 5,000 naira ($12) in monthly payments to the poorest families.

"It became clear that the timing is problematic, that practically there is still heightened inflation, and also removal of subsidy will further worsen the situation," Ahmed said during a meeting with the Senate President and the junior oil minister in Abuja.

Ahmed said the fuel subsidy, which costs Nigeria up to $7 billion a year in revenue, was set to end in June. But the government will ask parliament for extra subsidy payments until a suitable time for their eventual removal.

HIGHER DEFICIT

Razia Khan, chief economist for Africa and the Middle East at Standard Chartered, said the subsidy suspension in a pre-election year will disappoint investors who had hoped for stronger reform momentum to ease the budget deficit.

"The ongoing fuel subsidy will likely mean that FX reserves do not grow as fast. Policy may become more deeply regressive, with little evident economic benefit," she said.

Successive Nigerian governments have tried unsuccessfully to scrap the subsidy. Attempts to remove it have triggered street protests and strikes.

Labour unions have rejected the deregulation of the country's downstream oil sector, which relies on imports of refined petroleum products, urging the government to speed up work on upgrading the country's four refineries.

Unions were warming up for demonstrations against the plans.

Africa's richest man Aliko Dangote expects his oil refinery project in Lagos, Nigeria, to begin production by the end of the third quarter and reach full capacity by early 2023.

($1 = 414.53 naira)

(Reporting by Camillus EbohWriting by Chijioke OhuochaEditing by Catherine Evans and Mark Potter)

By Camillus Eboh