The Treasury said it would apply to the Inner and Outer Hebrides, the Northern Isles, the islands in the Clyde and the Isles of Scilly.

The 5p per litre tax discount will apply to fuel consumed on the islands.

Chief Secretary to the Treasury Danny Alexander said it was "terrific news" for island communities.

The Treasury said fuel retailers would receive a 5p a litre rebate on the petrol and diesel they purchase and would be required to pass on the full saving to the customer.

It said to ensure retailers suffered no cash flow problems in passing on the discount from 1 March, they would be able to claim the 5p rebate from HM Revenue and Customs on fuel purchased from 1 January next year.

The announcement came after the UK government received final European Union (EU) clearance to operate its rural fuel rebate pilot scheme for islands.

Mr Alexander said isles communities had suffered the effects of high fuel costs.

He said: "As well as securing EU clearance, we have produced a scheme designed to protect the cash flow of local retailers.

"We have also delivered on a promise to help address the persistent unfairness of some of the lowest income communities in the country paying among the highest pump prices."

Mr Alexander added: "After years of people saying this could not be done, the government has delivered it in less than two.

"This is another example of our determination to govern for the benefit of the whole United Kingdom."

Draft legislation for the pilot scheme will be published on the HMRC website.

Western Isles SNP MP Angus MacNeil said he was pleased the scheme was being introduced early next year.

He said: "Fuel is one of the main issues of concern in rural areas and, and after five years of campaigning, I welcome that we have this victory and a start date for the pilot scheme.

"The price of fuel is now at record levels, with the gulf in price between the Hebrides and the mainland being nearly 18p a litre.

"While this pilot will go some way to helping motorists, the chancellor must also scrap the proposed 3p a litre fuel duty increase that is being proposed from January."

Highland and Islands Labour MSP Rhoda Grant said it was welcome news for island communities, but "does nothing to help those living in remote rural mainland areas where fuel prices are just as high".

She said reversing the proposed VAT increase on fuel would help people in all rural communities.

Skye Liberal Democrat MP Charles Kennedy also welcomed the pilot scheme.

He said: "It has been a long haul since Jim Wallace and myself, based on a Brussels visit to see European officials about variable fuel rates way back in the eighties, began trying to persuade successive UK governments to adopt such an approach.

"At last, in government, party colleagues have been able to make and win that case."