TEHRAN (Reuters) -- Iran's Parliament agreed on Tuesday to the principle of amending this year's budget to finance more gasoline imports but still has to debate the amount of cash allocated for the purpose, state radio reported.

Lawmakers had originally slashed the budget for fuel imports to $2.5 billion from $4 billion for the financial year to March 2007, but high oil prices meant the amount approved was spent on imports well before the end of the year.

Although Iran is the world's fourth-largest crude oil exporter, it lacks refining capacity and has to import 40 percent of the 70 million liters of gasoline it burns each day.

A senior Oil Ministry official had said in August the government had allowed the ministry to continue importing gasoline until Parliament decided on a new budget.

Parliament has yet to approve the amount of extra funds to be added to the budget and will continue the gasoline debate today. The government had proposed an additional $3.5 billion but Parliament's budget committee proposed $2.2 billion.

"What we are debating now is if the government needs further permission to import gasoline or not, and I think most of the MPs agree with that," MP Mohammad Mehdi Mofatteh, a member of the budget committee, said in a debate broadcast on radio.

Shortly after he spoke, MPs voted to approve the principle of amending the budget without allocating funds.

If imports stopped, the government had suggested fuel rationing, a sensitive move in a country where cheap, abundant gasoline is considered a national right. Government officials have said public transport should be improved before rationing.

Importing gasoline is costly for Iran because it subsidizes fuel, whether produced domestically or abroad, so that drivers pay the equivalent of just 9 U.S. cents a liter at the pump.

Such cheap fuel -- when international prices have been soaring -- encourages waste and a thriving trade in contraband fuel to Iran's neighbors, economists say. They also say such untargeted subsidies are inefficient.

International energy traders who, in peak periods, send a gasoline tanker to Iranian docksides on average every two days have been watching the debate over imports keenly.

Iran's dependency on fuel imports makes it vulnerable to sanctions which might be imposed over its nuclear dispute with the West. But diplomats suggest the West would be wary of a step that would likely hurt the public more than the government.

Sanctions now being discussed at the UN Security Council would ban most nuclear and missile cooperation with Iran.