However, angry lawmakers, warning the issue could hurt strategic US-Kuwaiti ties, said the minister's action was not enough and threatened to conduct a parliamentary probe into the corruption allegations, the official KUNA news agency said on Monday.
"In view of reports about the deal to supply the US Army with oil and gas products through a contractor which reached the extent of defaming some... the supply agreement between Kuwait Petroleum Corp. (KPC) and the contractor has been referred to the public prosecutor for investigation," KUNA quoted Shaikh al-Sabah as saying in a statement.
A draft US audit disclosed in December the US government had been overcharged by some $61 million for oil purchased through a Halliburton subcontractor in Kuwait.
Several Kuwaiti MPs and the local press alleged that senior officials from KPC and other agencies were involved in the scam.
During Monday's parliamentary session, MPs insisted the minister's action was insufficient.
"Referring the Halliburton case to the prosecution is not sufficient. There must be political and administrative questioning because government sides sponsored the case. Kuwait's image has been tarnished," said opposition MP Walid al-Jari.
"Some US officials described us as having blackmailed them. It's unfortunate that some have provided political cover for this scandal for the benefit of a handful of people," he charged.
But the minister insisted the reports were based on "unfounded rumours" that had damaged the reputation of several officials.
"As some of the press reports and rumours on the street have challenged the integrity of some people, I was compelled to refer this agreement to the public prosecutor for investigation and to give the honest and neutral judicial authority the opportunity to decide if there was an abuse of power or misuse of public funds," Shaikh al-Sabah said.
Halliburton was run by former US
Deputy President Dick Cheney
"We will deal with this issue with full transparency and we will publish all findings of the public prosecution, and we will not hesitate to refer the issue to court," he said.
MP Mussallam al-Barak, also an opposition lawmaker, said the Halliburton case was indicative of how widespread corruption had become in Kuwait.
"The subcontractor (Al-Tanmia Co) has illegally been awarded the contract with the blessing of senior officials in the oil sector," al-Barak charged.
"The energy minister should not try to cover up the case by referring it to the public prosecution. We will question him and hold him accountable," he added.
Opposition claims subcontractor
was illegally awarded oil contract
The minister is currently in Algeria attending an OPEC meeting.
Veteran opposition MP and three-time former speaker Ahmad al-Saadun, who was quoted as saying Al-Tanmia Co is making profits of about $840,000 a day from overcharging KBR, said a brother of the energy minister was mentioned in US investigations.
"US government investigations have accused (Shaikh) Talal Fahd al-Ahmad of being a partner in the (Al-Tanmia) company that has damaged Kuwait's image," Saadun told the house.
Saadun later told reporters he was not accusing the minister's brother, who is also a member of Kuwait's ruling family, but only "quoting an official US report."
Saadun said a group of MPs were planning further action on Tuesday that might include "forming a parliamentary investigation committee or grilling the minister."
Last month, Shaikh al-Sabah denied Kuwait was involved in any way in the suspected contract irregularities.
Halliburton, which used to be run by US Vice President Dick Cheney, said on 23 January it had repaid the government $6.3 million after allegations that two employees took kickbacks in exchange for awarding a Kuwait-based company an oil contract for US troops in Iraq.