MUSCAT/DUBAI, June 22 (Reuters) - Oman has scrapped price controls for all but 23 basic products, prompting rare public criticism of government policy, after companies demanded freer markets. Economists said the move was unlikely to have a major impact on inflation.

Under rules dating back to 2011, retailers and traders needed to ask the Public Authority for Consumer Protection for approval to raise the prices of all goods.

Under new rules announced last week, permission will still need to be sought to increase prices of essential items such as rice, tea and fish, state news agency ONA said. Other goods will no longer need approval, though the authority will continue monitoring all prices for any suspicious rises to prevent monopolistic behaviour.

"The Council of Ministers agreed that the Food Security Committee...will revise the list of basic goods annually," ONA said. "The prices of the remainder (of) goods and services, which are not included in the list, are governed by the supply and demand principle."

In an unusual public furor over government policy in the absolute monarchy ruled by Sultan Qaboos bin Said, hash tags objecting to the reform drew tens of thousands of tweets. One showed a picture of a man pierced by a screw with the word "consumer" written on his trousers.

"We admit that we made a mistake by not preparing the public for this decision," Commerce Minister Ali bin Masoud al-Sunaidy told journalists.

Oman, a small non-OPEC oil exporter, faced sporadic street protests in 2011 that demanded jobs and an end to corruption. It responded by boosting welfare spending and creating tens of thousands of public sector jobs.

Despite the public dismay, economists said the reform was unlikely to boost inflation much, partly because companies knew the threat of government action against "monopolistic" behaviour remained.

"I do not expect a significant impact on the cost of living," said Fabio Scacciavillani, chief economist at Oman Investment Fund, a state fund.

"The worst you can have is a one-off adjustment in a handful of items, and that will be filtered out. The key prices remain under the administrative watch."

Oman's inflation climbed to a four-month high of 1.5 percent on an annual basis in April from 0.7 percent in the previous month, but it remains at half of the average rate of 3.0 percent in the last five years.

There was no indication in the announcement of the reform that state subsidies for fuel and food, which have begun to strain government finances in recent years, would be cut.

In May, Oman's minister for financial affairs said the government was looking closely at cutting subsidies, with petrol an obvious target as the country looks at ways to soften rising pressure on public finances.