The federal government is set to cut $1000 off the solar panel subsidy to cool an overheating market which has started to push up electricity prices.

Climate Change Minister Greg Combet said the subsidy would be reduced to around $3700.

"We will be announcing today a reduction in the level of federal government support for the installation of solar panels on people's roofs," he told ABC Radio.

"However, the cut we are making still means that a subsidy of around $3700 will be available."

Mr Combet said there had been such strong demand for the solar panels that it had resulted in higher electricity prices.