The national carriers of the two neighbouring Gulf states will be the first foreign airlines to operate domestic flights in the oil-rich nation, competing mainly with the government-owned Saudia and budget carrier NAS.

"The best bids came from Gulf Air and its partners, and Qatar Airways," the General Authority of Civil Aviation said in a statement late on Friday.

It said 14 companies had competed for the licences, adding that the decision took into consideration the accumulated experience of the companies in air transport, as well as operational efficiency and financial solvency.

Saudi Arabia stretches over 2.149 million square kilometres (0.85 million square miles) of mainly desert covering most of the Arabian Peninsula, and has a population of more than 27 million, including around 8.5 million foreigners.

It has four international airports and 22 domestic airports.