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By Niluksi Koswanage

KUALA LUMPUR, June 2 (Reuters) - Malaysia will embark on a revamp of its fuel subsidy scheme this week that may lead to higher petrol and diesel prices later in the year, a government minister said on Monday.

Its government could become the latest in Asia to ease its ballooning subsidy bill before the pressure from record crude oil prices leaves cracks on spending, but it needs to tread carefully to avoid deepening its unpopularity.

Domestic Trade Minister Shahrir Samad told Reuters Malaysia will take the first step towards reforming its fuel subsidy system on Wednesday.

"This announcement is an incremental step towards the total restructuring in fuel subsidies in August," Shahrir said. "Wednesday's announcement will be an indication of the direction we will take."

Although he declined to give details, local media have reported the proposals may include direct cash income subsidies and quotas for Malaysians.

Shahrir earlier told reporters that Malaysia will eventually raise pump prices for petrol and diesel in August but subsidies will remain for the poor.

"Petrol prices will increase," he said, without specifying how much prices would rise.