The Australian government has offered to pay the costs of keeping two drug traffickers in prison for life if Indonesia spares them from the death penalty.

The foreign affairs minister, Julie Bishop, raised the payment of costs as a fallback option if the Indonesian government rejected a prisoner transfer arrangement that would allow Andrew Chan and Myuran Sukumaran to serve out jail terms in Australia.

“As discussed, the Australian government would be prepared to cover the costs of the ongoing life imprisonment of Mr Chan and Mr Sukumaran should a transfer not be possible,” Bishop wrote in a letter to her Indonesian counterpart, Retno Marsudi, last week.

Retno rejected the prisoner exchange request several days later, writing to Bishop on 8 March to say there was “no legal basis within the Indonesian law that would allow for such exchange to take place”.

The correspondence provides new insight into the high-level lobbying efforts to save the lives of Chan and Sukumaran, whose lawyers are due to return to court on Thursday in another attempt to overcome president Joko Widodo’s refusal to grant clemency. The pair were sentenced to death for their roles in the so-called Bali Nine heroin smuggling plot.

In a sign of the diplomatic strain the issue is causing, Indonesian minister Tedjo Edhy Purdijatno warned this week that the country could release a “human tsunami” of 10,000 asylum seekers to Australia if Canberra kept “doing things that displease” Jakarta. He described the proposed prisoner swap as “unethical”.

Bishop told Retno that Australia’s representations “in no way seek to interfere in Indonesia’s sovereignty and the independence of its legal system”.

“Rather, we are respectfully seeking to do only what Indonesia does so effectively in its advocacy opposing the application of the death penalty to Indonesian citizens abroad,” she wrote on 5 March.

Extracts of the letter were first published by the West Australian newspaper on Thursday and the document was subsequently obtained by Guardian Australia and other media outlets.

In arguing the case for a prisoner swap, Bishop wrote: “As discussed, there are Indonesian prisoners in Australian prisons, arrested by Australian police for seeking to import 390 kilograms of heroin into Australia – 47 times the amount that Mr Chan, Mr Sukumaran and their co-accused sought to smuggle from Indonesia to Australia.”

Bishop reiterated her case for a permanent stay of execution “given the irreversibility of capital punishment” and “the remarkable transformation” that the two men had undergone during their 10 years in prison.

“Given the priority placed on fighting drugs in Indonesia, if clemency was granted Mr Chan and Mr Sukumaran could continue to perform their vital work in the Indonesian penal system, greatly benefitting Indonesian citizens affected by the scourge of drugs,” she wrote.

Bishop emphasised the value on the relationship with Indonesia and, in a pointed warning, said she “would not wish Indonesia’s standing in Australia to be affected by these planned executions”.

Retno replied that she wished to reaffirm her commitment “to continue strengthening and elevating the good bilateral relationship between our two countries”. She did not specifically respond in the letter to Australia’s offer to pay prison costs.

Speaking to reporters in Perth on Thursday, Bishop said she had put forward several proposals to resolve “what is becoming a very difficult issue for both our nations”.

Bishop acknowledged that Australians did not all feel the same way about the push for clemency for Chan and Sukumaran.

“I understand people’s deep concerns and I know that there is no one view in Australian society on this issue and those whose family and friends have been affected by drugs feel particularly concerned about this,” she said.

“I understand that, but I don’t see that any good purpose will be served by a state-sponsored execution of two Australians who have been in prison for 10 years now who will, if these executions are stayed, spend the rest of their life in prison.

“I don’t see how we can turn the clock back for anybody else. I don’t see how this will resolve drug trafficking. I don’t see that this will act as the deterrent that Indonesia hopes it will.”

In a separate development, the West Australian reported that Australian government contacts had “engaged with military hardman and one-time Indonesian presidential candidate Prabowo Subianto to explore what influence he could bear on preventing the executions”.

