A senior oil industry source told Reuters the resource-rich Central Asian state was looking to put at least a part of its 25 percent stake in the Tengizchevroil joint venture up for auction, and valued the whole share at up to $2.5 billion.

"Now these shares are worth twice as much as they were two years ago," the source said. "Taking everything into account, there is sufficient justification for the sale of the stake."

The decision is bound to cause a political backlash against the government of Prime Minister Nurlan Balgimbayev, who analysts feel has been forced into the decision by the country's mounting budgetary pressures.

"I wouldn't expect the current regime in Kazakhstan to be selling a crown jewel like this unless they needed the money," said Rick McArthur of ArthurAndersen in Almaty.

Tengizchevroil is a venture between U.S. Oil majors Chevron and Mobil with 45 and 25 percent respectively, Kazakhstan with 25 percent, and Russia's LUKoil LKOH.RTS and U.S. Group Arco sharing the remaining five percent.It accounts for one third of Kazakhstan's oil production, producing around 8.5 million tonnes (170,000 barrels per day) last year and is widely considered to be the only truly successful child of Kazakhstan's oil privatisation programme.

A planned new oil pipeline linking the project's huge onshore Tengiz field with Russia's Black Sea oil Port of Novorossiisk is expected to be ready in 2001, allowing output to rise to 17 million tonnes medium term, the industry source said.