President Chavez was a guest of the mayor in May 2006

The mayor of London said the agreement will help provide half-price bus and tram travel to some 250,000 Londoners on income support.

The deal follows discussions between Mr Livingstone and Venezuelan President Hugo Chavez.

Mr Livingstone signed the deal at a ceremony in City Hall.

Representatives from the Venezuelan government and the oil company Petróleos de Venezuela Europa (PDVE) were at the ceremony.

"Third-rate dictator"

"This agreement will benefit up to a quarter of a million of the lowest income Londoners," Mr Livingstone said.

"Those on income support will be eligible to receive half price bus and tram travel - a benefit worth at least £280-a-year."

In return, a team of officials from the Greater London Authority will work in Venezuela advising on recycling, waste management, traffic and on reducing carbon emissions.

But Richard Barnes, deputy leader of the London Assembly Conservatives, attacked the deal.

"Why does London, one of the richest capitals in the world, need to exploit a developing nation? This money would be better directed at the poor of Venezuela," he said.

"London should not be doing business with third-rate South American dictators with an appalling human rights and democratic record."

Venezuela has the largest oil reserves in the Americas, and its socialist president is the Bush administration's fiercest critic in Latin America.

But in November 2005, it signed a deal with the US state of Massachusetts to provide cheap heating oil to poor households. Similar deals were also signed in Boston and New York.