Taking cues from the wholesale market, retail prices also increased by Rs 2 per kg to Rs 39-40 per kg.
Traders said that prices may further go up in the coming days as millers are not releasing the stock in anticipation of better returns.
There is more than 60 per cent drop in arrivals to 5,000 bags of 100 kgs in the wholesale market today as against 13,000 bags yesterday, they added.
Traders mentioned that prices are on the rise also because of increase in summer demand for the sweetener by ice-cream and soft drink makers.
In the mill gate section, Bulandhshar traded Rs 2 higher at Rs 33.40 per kg, followed by Sakoti by Rs 1.45 to Rs 32.70 per kg, Simbholi by Rs 1.15 to Rs 33.40 per kg.
In the spot market segment, M-30 rose by Rs 1.20/1.40 to Rs 34.50-36.00 per kg and S-30 moved up by Re 1/Rs 1.20 to Rs 34.00-35.50 per kg.
Mill delivery M-30 edged higher by 70 paise to Rs 32.30-33.70 per kg and S-30 by Re 0.60-Rs 1.10 to Rs 32.00-33.50 per kg.
In order to bail out sugar mills that are unable to pay Rs 11,000 crore dues to sugarcane growers, the government had yesterday decided to hike import duty on sugar to 40 per cent from the current 15 per cent, while it extended export subsidy of Rs 3,300 per tonne till September this year.
That apart, the government decided to provide additional interest-free loans of up to Rs 4,400 crore especially for clearing cane arrears.
Yesterday, the wholesale price of sugar rose by Rs 60 paise per kg following the government's decisions.
India is the world's second largest sugar producer but the largest consumer.