Energy prices have gone up by 7 percent on average in 2012 Reuters

With fuel prices rising, thousands of UK households are expected to go into fuel poverty by Christmas, according to a lobby group.

Fuel poverty is the state of a household when more than 10% of its income is spent on home heating.

In a shocking report, the Fuel Poverty Advisory Group (FPAG), which is funded by the Department of Energy, warns that about 300,000 extra households are likely to be forced into fuel poverty within weeks.

"With a cold winter, welfare reforms cutting incomes, and all at a time of austerity measures and other rising household costs, the plight of the fuel poor has never been more serious," said Derek Lickorish, chairman of the FPAG.

"A toxic cocktail of rising wholesale prices, the high cost of energy reforms and cuts in incomes for many households means fuel poverty levels are set to sky-rocket without radical action."

Energy prices have gone up by 7 percent on average in 2012, taking the average bill to £1,247 (€1,532, $2,016) for direct debit customers and £1,336 for cash and cheque customers, the group notes. There have been estimates that for every 1% increase in energy prices, about 40,000 households are pushed into fuel poverty.

Describing the problem as "spiralling", it estimates nine million people to fall into fuel poverty by 2016.

The group has urged Prime Minister David Cameron to tackle the situation. It said the government should create a cross-departmental body to oversee the problem and create a new duty for local authorities to meet fuel poverty targets. It also wanted an impact assessment of welfare reforms on fuel poverty.

Consumer groups have been requiring the government to use a portion of the £4bn annual carbon taxes set to be collected to resolve the problem. They have suggested plans including an ambitious programme of home insulation.

In November, energy regulator Ofgem and the government put forward proposals for simplifying the energy market. Under the plans, consumers can choose from one of four types of tariff, including a variable rate deal and a fixed rate over a certain period of time. Suppliers have to place all customers on the cheapest price available for their chosen tariff.

Energy Secretary, Ed Davey, is set to attend a summit with the heads of electricity and gas companies, regulators and consumer groups to deal with rising energy prices and to discuss how the industry serves its customers.