India has cut fuel subsidies to neighbouring Bhutan as part of a rebuke to the kingdom for "taking the Indian government for granted", a report said Thursday, citing government documents.

India recently halted subsidies on cooking gas and kerosene to its northeastern neighbour, straining ties between the two usually friendly countries during Bhutan's second-ever parliamentary election.

The Indian Express newspaper published an internal note from India's foreign ministry dated June 16, saying it has been "repeatedly conveying our concerns regarding the lack of transparency and openness on (the) part of the Royal Government of Bhutan".

The note suggests New Delhi should "demonstrate our seriousness through some concrete expression of displeasure" including by reviewing some previously approved development projects.

The fuel subsidy cut was part of the suggested measures, the Express said.

The note says the Bhutanese "seem to take the Indian government for granted" and take decisions unilaterally, including on issues affecting "common security".

Bhutan's king was guest of honour at India's Republic Day parade this year and the country is the only one in South Asia with which New Delhi has had consistently warm and trouble-free relations.

Other reports have suggested that attempts by Bhutan to improve ties with China, its giant northern neighbour with which it currently has no diplomatic relations, are behind India's disgruntlement.

"Here we are, egging a loyal friend, neck deep in a general election, to align with China," Indian commentator Rohit Bansal wrote in The Pioneer newspaper this week.

A second Indian foreign ministry note dated June 17 focuses on hydropower cooperation and also advocates a more hardline strategy, the report said.

Bhutan, a country of about 750,000 people, is hugely dependent on its giant neighbour India for aid, imports and investment, particularly in its hydropower projects.

The nation, famed for its pursuit of "Gross National Happiness", has also been struggling with a serious shortage of rupees, which has led the government to introduce import controls.

It plans to increase its hydropower capacity almost seven-fold by 2020 to export more energy to India, but is reliant on Indian grants and loans to complete 10 new projects.

The second note suggested that the grant component should be reduced and raised concerns about the projects' huge overrunning costs.

The sudden deterioration in ties comes as Bhutan concludes its second ever parliamentary election on Saturday with two parties vying to form a government.

Other reports have said soaring costs of fuel in Bhutan following the withdrawal of subsidies earlier this month has led to concerns India is attempting to influence the outcome of the election.

Landlocked Bhutan has traditionally had frosty relations with China owing to a long-running border dispute, but last year the countries' premiers met for the first time and expressed a willingness to improve ties.