Indonesian president Susilo Bambang Yudhoyono says he will introduce a two-year moratorium on deforestation, a large source of income for his country which also contributes heavily to global warming.

"We will ... conduct a moratorium for two years where we stop the conversion of peat land and of forest," Mr Yudhoyono said at a joint press conference with Norwegian prime minister Jens Stoltenberg a day before an international deforestation conference starts in Oslo.

The decision was part of a deal reached with Norway, which has agreed to contribute up to $US1 billion to help preserve the Indonesian forests.

Together with Brazil, Indonesia boasts one of the world's largest rain forests, which function as global "lungs" that transform carbon dioxide into oxygen.

The country however also accounts for a large portion of the world's deforestation, especially on the islands of Sumatra and Borneo.

Palm oil producers have especially caught the attention of environmental protection groups.

According to Greenpeace, forests covering the equivalent of 300 football fields are eradicated every hour in Indonesia, which along with Malaysia produces 80 per cent of the world's palm oil, used for cosmetics, food and fuel.

A Norwegian negotiator said the moratorium would take effect "immediately".

"There is of course a lot of illegal logging," said Hans Brattskar, who heads up the International Climate and Forest Initiative, launched by the Norwegian government.

"But the conversion of the forests and the peat land into plantations and for industrial use, especially for paper and palm oil production, represents a very large part of deforestation in Indonesia," he added.

"It is therefore important to emphasise the Indonesian authorities' courage in depriving themselves of potential future revenue sources."

Mr Yudhoyono acknowledged it was difficult to find the right balance between the socioeconomic interests of his people and the fight against climate change.

Norway will begin support for Indonesia's efforts by enabling the country to set up a control mechanism to help fight deforestation, and as of 2014 the Scandinavian country will offer aid contingent on Jakarta's progress.

"If there is no reduced deforestation, we will not pay. If there is reduced deforestation, we will pay," Mr Stoltenberg told the press conference.

According to the United Nation's Intergovernmental Panel on Climate Change, or IPCC, deforestation is responsible for 17 per cent of global greenhouse gas emissions, which is more than all the world's modes of transport combined.

The Norwegian aid to Indonesia will come out of the three billion kroner ($555 million) that the country puts aside every year to fight deforestation around the world.

Norway, which owes its prosperity to its vast oil and gas reserves, has already signed similar agreements with Brazil and Guyana.

-AFP