Air pollution in Singapore rose to unhealthy levels Monday, blanketing the city-state's skyline with clouds of smog from fires raging across giant rainforests in the neighbouring Indonesian island of Sumatra, officials said.

Singapore's National Environment Agency said the pollutant standards index (PSI) reached a high of 111 at 7:00 am (2300 GMT) before easing to 80 a few hours later.

A reading between 101-200 is considered "unhealthy", with people with existing heart or respiratory ailments advised to reduce physical exertion and outdoor activity.

Singapore and neighbouring Malaysia are smothered annually in varying degrees by smog from forest fires in Indonesia during the summer months from June to September.

Last year's smog was the worst since 1997-1998, when the smoke caused an estimated $9 billion in losses in economic activity across Southeast Asia.

The NEA said in a statement that the current smog is "most likely due to the hotspots (forest fires) in South Sumatra detected over the past three to four days".

"Given the continued dry weather in southern Sumatra, we can expect the hotspots to persist and the 24-hour PSI for Singapore to fluctuate between the high-end of the moderate range and the low-end of the unhealthy range for the rest of the day."

White smog shrouded the city-state's skyline, with smoke wafting into the business district.

But the smog was thickest in western part of Singapore, which is nearest to Sumatra, where residents said they could smell a light acrid smell of burning foliage.

In an annual occurence, westerly monsoon winds blow smoke from the fires caused by slash-and-burn land-clearing by individuals and plantations on Sumatra, which lies across the Malacca Strait.

Last year, the PSI hit record levels in Singapore and Malaysia forcing people to wear face masks and stay indoors and prompting Indonesian President Susilo Bambang Yudhoyono to apologise to both neighbours.

Singapore last month passed a bill that gives the government powers to fine companies that cause or contribute to the annual smog up to Sg$2 million ($1.6 million), regardless of whether they have offices in the city-state.

While the new law is designed to target companies both based in Singapore and outside, observers have said enforcement will be difficult.