The South Korean government delivered an embarrassing blow to Korean Air on Wednesday, bringing in a rule stipulating that all budget airlines must operate domestic routes for two years before they are allowed rights to fly abroad.

The news comes days after Korean Air, the country’s flag-carrier, detailed plans to launch a low-cost carrier in May. Air Korea, the new carrier, plans cheap flights to Japan, China, Thailand and Malaysia.

The venture is intended to compete head-to-head with Tiger Airways, the Singapore-based low-cost airline, which announced plans to set up a carrier in South Korea as the next step of its expansion across Asia.

But the ministry of transport in Seoul said new airlines must operate domestic routes, and a minimum of 20,000 domestic flights, with no passenger fatalities from any accidents for two years before they can secure government approval for international flights.

The measure was aimed at improving passenger safety by requiring companies to gain experience before expanding overseas, the government said. Although Air Korea is a subsidiary of Korean Air, it must prove itself separately, the ministry said.

Korean Air said on Monday it would invest Won20bn ($21.5m) to establish the budget carrier, using three Airbus A300s and two Boeing B737s, with all aircraft maintenance and operation training to be carried out by Korean Air.

There are now two budget carriers in Korea – Jeju Air and Hansung Airlines – with the former expected to receive approval to fly to international destinations from the second half of 2008.