(Adds detail, background)
TEHRAN Oct 20 (Reuters) - Iran's parliament approved a proposal on Tuesday to phase out food subsidies, state radio reported, a policy the government says will allow more targeted help for the poor but which critics say may fuel inflation.
"According to the bill subsidies on food such as wheat, rice, sugar, oil...will be ended gradually in five years. But the parliament excluded medicine subsidies from the bill," the radio said.
The conservative-dominated Parliament on Sunday passed another section of the bill that would cut energy subsidies, potentially making Iran less vulnerable to any international sanctions over its disputed nuclear programme chiefly by reducing demand for gasoline, much of which is imported.
The bill needs to be approved by the hardline watchdog body, the Guardian Council, to become law.
President Mahmoud Ahmadinejad, re-elected in a disputed presidential vote in June, has argued his subsidy reform bill would help "implement justice and remove discrimination".
Subsidies have placed a heavy burden on Iran's budget.
The government wants to increase energy and utility prices and compensate low-income families with direct cash payments. The authorities say hefty fuel subsidies mainly benefit the wealthy, not the poor.
But critics of the bill say it will increase inflation, now running at about 13 percent annually after hitting a high of nearly 30 percent a year ago.
Iran has been hit by three rounds of United Nations sanctions over its nuclear programme, which the West fears is a cover to build bombs. Iran denies this and says its aim is to generate electricity. (Writing by Parisa Hafezi, Editing by Anthony Barker)
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