Hundreds of demonstrators in Nigeria's commercial capital Lagos shut petrol stations, formed human barriers along motorways and hijacked buses on Tuesday in protest against the shock doubling of fuel prices after a government subsidy was removed.

The fuel regulator announced the end of subsidies on Sunday, part of sweeping economic reforms designed to improve fiscal discipline in Africa's biggest oil producer, a hugely unpopular act that could cause social unrest, at least in the short term.

More than 1,000 people in the main market area of central Lagos sang, chanted and waved placards reading: no to fuel price hikes and we demand living wages.

A group of demonstrators set up a roadblock of burning tyres on a major Lagos highway.

Police in riot gear kept watch, but the protest was largely peaceful.

The prices of everything will increase, transport, housing, school fees, food, etc. The common man will not be able to survive. We will say no and oppose bad government policies. We will say no and oppose IMF (International Monetary Fund)policies, said Ganiat Fawehinmi, widow of a human rights lawyer.

Economists say the subsidy filled the fuel tanks of middle-class drivers at the expense of the poor, encouraged massive corruption and waste, and handed over billions of dollars of government cash to a cartel of wealthy fuel importers.

Removing it pushed pump prices to 150 naira ($0.92) per litre from 65 naira overnight.

The subsidy removal is part of efforts to cut Nigeria's exorbitant cost of government, a flagship policy of President Goodluck Jonathan and his economic management team, alongside fixing the broken power sector and speeding up ports.

Finance Minister Ngozi Okonjo-Iwealahas said removing the subsidy would save more than 1 trillion naira ($6.16 billion) in 2012. Central Bank governor Lamido Sanusi is also behind the move.

STRIKES, PROTESTS

But with the majority of Nigerians living on less than $2 per day, slashing subsidies is politically explosive.

Our struggle is not just against fuel subsidy, it is against bad governance. Jonathan has shown that he can't be trusted, Issa Aremu, vice president of the National Labour Congress, told demonstrators.

He said he was engaging in dialogue and all of a sudden he went ahead and increased the price.

Jonathan released a statement saying he had appointed a committee to ensure the money saved in subsidies was well spent and to dialogue with organised labour, civil society and stakeholders.

Protesters in Jonathan's Niger Delta region in the southeast, including ex-militants who brought havoc to the region until a series of peace deals in 2010, blocked the Warri-Port Harcourt highway, in Delta state, until three van loads of soldiers turned up to chase them away.

Many Nigerians fear any savings will be consumed by corrupt politicians.

The committee would produce monthly savings estimates and make sure the funds are transferred to a special account in the central bank which would fund poverty alleviation programmes, Jonathan's statement said.

Lawmakers have been divided on the subsidy removal, leaving the future of the measure potentially in doubt. If they decide to block it, they can add a subsidy to the 2012 budget which they have still to vote on. But they would need to find a way to pay for it, probably by cutting spending elsewhere.

(Writing by Tim Cocks; Editing by Janet Lawrence)