The Economy Ministry also said in a statement that Asia's fourth-largest economy, heavily dependent on energy imports, could allow state-run Korean National Oil Corp. (KNOC) to sell oil products to retailers, as it looks to trim energy costs that have helped drive inflation to a 29-month high.

In a meeting with Parliament on Wednesday, Prime Minister Kim Hwang-sik said: "Considering the overall impact on tax revenue, the government will consider cutting oil taxes."

The move, which has come up for consideration repeatedly in recent months, would be in line with government action in the face of high crude prices in 2007-2009, when import tariffs were cut to 1 percent from 3 percent.

Domestic gasoline and diesel retail prices hit record highs of 1,967.2 won and 1,794.6 won per liter, respectively, last week, with government taxes accounting for 47 percent and 38 percent.

The world's fifth-largest crude oil importer has, like other countries, been grappling to contain inflation as global crude prices nudge 2-1/2 year highs, but may hold off on cutting taxes to avoid a boost to consumption.

"They (the government) are seen cutting oil taxes only if crude oil prices reach previous record highs below $150," Kyung Woo-hyun, fund manager at Daishin Asset Management, said.

"By not cutting taxes, they want to prevent rising energy consumption, especially after refiners cut prices."

Facing government pressure, South Korea's four refiners will lower their gasoline and diesel prices for three months starting from April 7.

GS Caltex and Hyundai Oilbank said in separate statements that they would cut domestic gasoline and diesel prices by 100 won ($0.092) per liter for three months from April 7.

They are following in the footsteps of top domestic refiner SK Energy, owned by SK Innovation, on Sunday and No.3 refiner S-Oil Corp. on Tuesday.

Share prices of domestic refiners mostly recovered within two days after dropping sharply on Monday, with SK Innovation ending up 1.5 percent, GS Holdings up 4 percent and S-Oil up 2.7 percent on Wednesday.

"Investors are expecting overall refining margin improvements this year as about a half of their products are exported and regional supplies are tight," Sean Hwang, head of equity research at Mirae Asset Securities, said.

"Views are mixed by 50:50 if refiners will continue their price cuts after July. Inflation risks from costlier energy might be easing as such pressures from other commodities peaked in February."

The Economy Ministry's Wednesday statement follows a review by a government task force on oil prices since Jan. 18.

Allowing KNOC, currently restricted to oil exploration and strategic stockpiling, to supply the wholesale market may be aimed at loosening the grip of top refiners on pump prices.

A Fair Trade Commission probe is looking into agreements between refiners to refrain from "invading" each other's territories at gas stations, and could release its findings by as early as mid-April.

"We conducted an analysis as consumers feel that local oil prices rose more and fell less than international prices," the Economy Ministry statement said. "Through triggering competition among refiners, we will lead them to cut prices."

The statement also said the government would look into Internet trading of oil products by the end of the year and a futures market by the end of 2012.

The government said it would consider increasing imports of oil products — which accounted for only 0.47 percent of demand in 2010 because of high shipping costs and environmental standards — by lifting a requirement for importers to build up a 30-day consumable oil product inventory.