The Petroleum Products Pricing Regulatory Agency will stop paying the subsidy to petroleum importers effective immediately, said the executive secretary Reginald Stanley in a statement.
"Consumers are assured of adequate supply of quality products at prices that are competitive and non-exploitative and so there is no need for anyone to engage in panic buying or product hoarding," the statement read.
Some stations around the country had already started hoarding fuel in anticipation of the move, a strategy that threatened to cause artificial scarcity in a country where consumers occasionally have to line up for hours whenever events affecting the price or distribution of fuel triggered panic buying or product hoarding.
Nigerians rely heavily on fuel not only for their cars, but also to power the generators that many homes and businesses use to compensate for the nation's epileptic power supply.
The move could see gas prices increase from the current level of about $1.70 per gallon (45 cents per litre).
Nigeria is a top producer of crude, but virtually all of its petroleum products are imported after years of graft, mismanagement and violence at its refineries.
The government says the move will save the country some $8 billion, part of which will be dedicated to much-needed infrastructure projects, but previous attempts to lift the subsidies have been met with nationwide strike actions.
In a country where people see little benefit from the country's staggering oil wealth, a culture of distrust has come to define the relationship between the Nigerian people and their government.
However, the country's respected economic team has promised that things will be different.
"Over and over, promises have been broken," said finance minister Okonjo-Iweala, a former World Bank official at a recent conference held in the commercial capital of Lagos. "Over and over, they have not seen the implementation they want take place ... This is different," she said.
Associated Press writer Yinka Ibukun contributed from Lagos.