"Yes, the prices of Proton (cars) will unavoidably be reduced because Proton has to compete," Abdullah told reporters when asked if Proton car prices would drop following the release of the policy on Wednesday.

"Proton has to have a price on its product which will be acceptable to the market. This is extremely important, they know that," he said.

He said prices for most cars would fall including vehicles imported in parts and assembled in Malaysia however sports utility vehicles, four-wheel drives and fully imported vehicles could maintain current prices.

Malaysia on Wednesday announced a string of new measures to boost its ailing auto sector, including tax cuts to five percent from 15 percent for cars from the 10-member Association of Southeast Asian Nations (ASEAN).

The move was brought forward from an initial date of January 2008 in a bid to promote Malaysia as a regional auto exporting hub.