In an address to the appointed Shura Council on Saturday, the closest thing the kingdom has to a parliament, Abdullah also said there is "no room ... for extremism" in the kingdom and vowed to crush what he described as a "misguided group of terrorists and murderers".

"We will continue our moderate policies in the production of oil, in its pricing and in protecting the international economy from instability," the king said.

His remarks on his nation's oil policies are important at a time when prices appear headed back toward $70 a barrel, a level not seen since Hurricane Katrina battered the US Gulf Coast.

Saudi Arabia holds over 260 billion barrels of proven oil reserves, a quarter of the world's total. It currently produce about 9.5 million barrels per day, or 11% of global consumption.

Gradual reform

In his speech, Abdullah vowed gradual reform to bring the kingdom closer to the rest of the world without violating the principles of Islam.

"We can't remain rigid and the world around us is changing," the monarch said.

Abdullah said the envisaged reforms, which would be debated through a state-sponsored national dialogue would seek to "meet the desires of society and be in harmony with Islamic Shariah (law)".

The Saudi king vowed to continue
the crackdown on al-Qaeda

The world's largest oil exporter will also continue liberalising its economy, fighting corruption and poverty and improving public governance, Abdullah added.

Saudi officials have said they cannot push reforms forward without strong popular backing, reflecting their awareness of possible resistance from the influential religious establishment and significant conservatism in the society.

The monarch made no reference, however, to widening the Shura Council's prerogatives, as wished by its head Saleh bin Humaid, especially in boosting its scrutiny over the government.

Abdullah also pledged to annihilate al-Qaeda-linked fighters who have plagued  the oil-rich kingdom with a wave of terrorist attacks.

"We renew our pledge to annihilate the deviant group of the  terrorist killers," he said using a term that refers to al-Qaeda  network in Saudi Arabia.

On extremism

Abdullah further vowed to "combat the ideology of those who accuse others of infidelity", as he addressed the kingdom's Shura (consultative) Council at the beginning of its term.

It was the first time that Abdullah addressed the all-appointed council as a king since the death of his brother King Fahd, although he was the de facto ruler of the oil-rich kingdom since 1995 due to the illness of the late monarch.

"We can't remain rigid and the world around us is changing"

Saudi King Abdullah

"There is no place for extremism in the land of the two (Muslim)  holy sites" of Makka and Medina, he added.

He said that his country's development "cannot be achieved unless there is an atmosphere of security and peace".

The kingdom has been under pressure to crack down on militancy  since the September 11, 2001, attacks on the US, a strike  masterminded by the Saudi-born Osama bin Laden in which 15 out of  the 19 suicide hijackers were Saudi.