ABUJA (Reuters) - Nigerian trade unions called off strikes and protests on Monday, ending a major confrontation over fuel prices after President Goodluck Jonathan said he would cut them by one third. Jonathan reinstated part of a subsidy on petrol, the scrapping of which was one of his key policies, and the u-turn may damage the credibility of a government already accused of being indecisive. The compromise still slashes the cost of the benefit to the government and leaves the way open to talks on phasing it out again later, but doing so may be much harder if Nigerians know they can reverse the unpopular policy by taking to the streets. The protest had added to the administration's headaches at a time when it was already under fire for failing to take adequate steps to quell an increasingly violent Islamist insurgency in the north by militant group Boko Haram. But the deal did avert a threat by oil workers to shut down production in Africa's biggest oil producer, a threat that had supported world oil prices. However, the main umbrella union in Nigeria's second biggest city of Kano, in the north, said protests and strikes would continue there. Sporadic violence has been worst in Kano, where anti-government sentiment is currently riding highest. Three people were killed and many wounded in clashes there last week. "In the past eight days through strikes, mass rallies, shutdown, debates and street protests, Nigerians demonstrated clearly that they cannot be taken for granted and that sovereignty belongs to them," Abdulwaheed Omar, president of the Nigeria Labour Congress (NLC), told a news conference. When a price cap of 65 naira ended on January 1, pump prices more than doubled to 150 naira. Africa's most populous nation holds the world's seventh largest gas reserves but its infrastructure provides enough power to run only one medium-sized European city, meaning most of the country's 160 million people live without electricity. However, given the hardships being suffered by Nigerians, and after due consideration and consultations ... the government has approved the reduction of the pump price of petrol," Jonathan had said in a national broadcast earlier in the day. Kano NLC leader Yunusa Danguguwa said he would ignore the agreement by the union bosses to end the strike. "We are saying no and we will continue to fight till the federal government listens to us ... we will assemble tomorrow to continue the struggle," he said, adding that it would not stop until the government reverted to a 65 naira a liter price. "Everybody has lost," said Bismarck Rewane of Lagos-based consultancy Financial Derivatives. The cost of administering the subsidy is higher than the subsidy and that is still there, so is the abuse and corruption that goes with the subsidy. And no one will invest in refineries to solve the long term issue while the pump price is fixed. Rewane also said the credibility of both the government and the unions is damaged: the government because it had lost a chance to tackle a perception of it as "inefficient, corrupt and wasteful" by failing to scrap the subsidy, and had shown it could be made to back away from key reforms. The unions have lost credibility because they are strongly suspected to have been paid off in talks, he said. It remains unclear whether the government will be able to keep the lid on the public anger unleashed by the protests, rooted in years of frustration at corruption and incompetence. Residents of Nigeria's biggest city, Lagos, reported soldiers in the streets in an apparent security move. He is ... not listening to the voice of the Nigerian people. We're not stupid and he shouldn't treat us as if we (are)," said IT consultant Mavila Sadiq. A few hundred protesters chanting "solidarity for ever" tried to continue protesting in Ketu, on the outskirts of Lagos, in the morning, but armed riot police and soldiers blocked them. "Ordinary people went out on the streets, they sacrificed and only got a portion of what they wanted," said Antony Goldman, head of PM consulting. There does seem to be an element of resignation about it, but it still leaves a kind of vacuum. The government will have to deliver ... (something) quickly. Analysts suggest that something may have to be a clean-up of the oil ministry, whose minister Diezani Alison-Madueke said overnight she had asked the corruption watchdog to investigate alleged graft in the subsidy process. Economists said the subsidy is wasteful and corrupt. Protesters have countered that the government should work harder to tackle graft and waste before rescinding public benefits. Jonathan gave approval on Sunday for an investigation into corruption in the oil sector. Alison-Madueke said she had written to the Economic and Financial Crimes Commission inviting the regulator to examine the subsidy procedure. The state oil company NNPC and fuel regulators have come under fire for lacking transparency and mismanagement, including in a report compiled by international accounting firm KPMG. Alison-Madueke pledged to review such reports, though some analysts question the ministry's good faith in doing so. So why now? Kayode Akindele, a director of the Lagos investment firm 46 Parallels, asked of the oil minister. But some other analysts regarded her as untouchable. Analysts said the unions reckoned that Jonathan, having a made a large concession, was unlikely to back down further. Several people were killed in clashes with police last week and 600 were treated for wounds, according to the Red Cross. Analysts noted the protests were not nationwide and only affected some parts of the country, as most Nigerians outside the main urban centers had never had fuel at the official subsidized price anyway. The southeast, where Nigeria's oil lies, was quiet. Additional reporting by Camillus Eboh in Abuja, James Jukwey, Tim Cocks and Njuwa Maina in Lagos; Writing by Tim Cocks; Editing by Tim Pearce