The wholesale price index, India's most closely tracked inflation gauge, rose 7.51 percent year-on-year, up from the previous week's rise of 6.52 percent.

The gain was much bigger than economists had expected and they said it could lead to an uptick in official interest rates, crimping growth in Asia's third-largest economy.

Official rates are currently sitting around three-decade lows.

"Everyone was anticipating a rise but not such a huge one. This will harden interest rates," said D.H. Pai Panandikar, economist at the RPG group, a New Delhi-based think-tank.

The wholesale price index was last at 7.51 percent in February 2001, economists and investment bankers said.

Stock prices which already been under pressure from weak global bourses and rising oil prices, fell further on the latest data.

The Bombay Stock Exchange's benchmark top-30 Sensex share index closed Friday down 1.06 percent, or 55.79 points, at 5,190.93. Bonds were also hit as yields jumped in expectation of rate hikes.

The inflation rise came as a setback for the new leftist-backed Congress government which is already facing the prospect of a pullback in economic growth in the second half as a result of delayed monsoon rains in the farm-dependent nation.

The government which came to power in May on a pledge of improving the lot of India's poverty-stricken millions is well aware inflation can be a political landmine.

In 1998, soaring prices of onions, an Indian cooking staple, resulted in the Hindu nationalist Bharatiya Janata Party losing office in the state of Delhi.

At the same time, many pensioners and other Indians depend on fixed-income securities and bank saving rates which now stand considerably below the inflation rate.

Analysts said inflation was likely to climb higher in coming weeks as government figures were yet to include the impact of higher international fuel prices on the domestic market.