Indonesia has declared it will refuse to take back asylum seekers rescued by Australian ships, casting doubt over the government's ''turn back the boats'' policy.

A mid-ocean stand-off between the two countries continued on Friday night off Java as Indonesia said it would not take a group of boat people who made a distress call on Thursday unless there was a threat to life.

Stand-off: Tony Abbott. Credit:Joe Armao

The incident has significantly raised tensions over the people-smuggling issue given the already strained relationship between the countries over revelations of widespread spying from the Australian embassy in Jakarta.

The stand-off comes as Parliament is due to sit for the first time with Mr Abbott as Prime Minister. The session starts as his promise of warm relations with Jakarta is under serious threat and his policy of limiting public information about boat arrivals is attacked.