Indonesia's president has apologised for the forest fires that have blanketed its neighbours Singapore and Malaysia with thick smog in Southeast Asia's worst air pollution crisis in 16 years.

Susilo Bambang Yudhoyono's apology came late on Monday as Malaysia's capital Kuala Lumpur was shrouded in haze, while Singapore's skies were pretty clear, with the pollution index reading in the low 40s.

"As the president, I apologise and seek the understanding of our friends in Singapore and Malaysia," he said.

He said Indonesia was doing everything it could to contain the fires on the island of Sumatra, including the deployment of military aircraft to waterbomb the blazes, and has earmarked around 200bn rupiah ($20m) to handle the disaster.

In response to the severe haze, Malaysia has declared a state of emergency.

Al Jazeera's Stephanie Scawen, reporting from Kuala Lumpur on Monday, said that the haze in Malaysia was worse compared to that of Singapore.

"You can smell the smoke, it stings your eyes," she said.

Schools in Kuala Lumpur and several states were ordered to close and authorities advised parents to keep children indoors or make them wear face masks outside.

Pollution levels in Malaysia's south eased on Monday but generally worsened elsewhere, with the city of Port Dickson, which lies on the Malacca Strait across from Sumatra, hitting the "hazardous" 335 level.

Singapore warning

Officials in Singapore, which bore the brunt of the smog last week, warned against complacency, saying the situation could deteriorate again if monsoon winds carrying smoke and particulates from Sumatra changed direction.

In a related development, Indonesian police said on Monday they had arrested two farmers for illegally starting fires to clear land in Sumatra.

However, the police said the farmers were not linked to any of the eight companies the government suspects are responsible for the fires.

The parent companies of those firms included Malaysia-listed Sime Darby, which has denied wrongdoing.

"We arrested two farmers in Riau who were clearing their land by burning. They were not working for anyone but just clearing their own land," Agus Rianto, deputy spokesman for the national police, said.

Under Indonesian law, any company or person involved in an illegal forest fire faces up to 10 years in prison and fines of up to 5 billion rupiah ($503,800).

The week-long environmental crisis, which has seen air pollution in Singapore and Malaysia reach hazardous levels, is damaging tourism and businesses in both countries and could result in a bigger economic impact than the 1997 haze crisis which cost an estimated $9bn.