Local governments have been told not to intervene directly in market prices unless it is "necessary".
The National Development and Reform Commission yesterday said on its website that any price intervention would need the approval of provincial governments or central authorities.
Some prices, such as those of resource products, power, education, medical services and pharmaceuticals, are subject to government controls, but those of most other commodities are set by the market.
The NDRC said the role of the market should be respected unless "there is remarkable price growth due to emergencies or natural disasters".
Last month, the government of Lanzhou in northwest China's Gansu Province capped the price of beef noodles, the most popular local dish, following public complaints about the price rise.
"The government should respect the role of the market, even if it wants to help the poor," said Xia Yeliang, economist with the School of Economics at Peking University.
"The capping would lead to decreased supply or dented quality of products or services, which in turn damages consumer interests," he said.
In Lanzhou, many people have reportedly found less beef or noodles after the price cap, although the price remained unchanged.
Lanzhou is not alone in suffering from rising prices as inflation sweeps the country. China set the benchmark consumer price index at 3 percent for this year, but it rose to 3.2 percent in the first six months and 4.4 percent in June, a 33-month high.
The NDRC notice said if the local inflation level is significantly higher than the official preset target, local governments should keep prices stable and should not increase regulated prices.
Price moves that are conducive to environmental protection and energy saving are exempt from the restraint.
The commission also said market players are forbidden from such manipulative activities as forming price cartels or cornering the market.
"This is obviously aimed to curb rising prices," said Zuo Xiaolei, chief economist of China Galaxy Securities.
But she said such moves may lead to a delayed pace of reform in China's pricing mechanism of resource products.
China has brewed such a reform this year to better reflect the market value of resource products and improve consumption efficiency.
"The NDRC move shows that in the interest of price stability, such reforms may have to be slowed down," she said.
(China Daily July 31, 2007)