The "offensive" material that shut down military cooperation with Indonesia reportedly insulted the country’s founding beliefs and its occupation of West Papua.

Speculation about the nature of the offending "laminated" training material at the Perth base of Australia's Special Air Service regiment has been rife on the internet.

The poster is believed to have ridiculed Indonesia's founding philosophy of Pancasila which represents the philosophy of national unity, democracy, social justice and belief in one god.

Instead of Pancasila, the poster had "panca-gila" written on it, reports the Guardian. Gila, in Bahasa Indonesia, means crazy.

An instructor from Indonesia's special forces unit, the Kopassus, who was serving at the base apparently took offence when he saw it.

It is believed the officer was also insulted by material regarding the occupation of West Papua, a province of Indonesia which has claimed independence from Jakarta. Since 1969 many West Papuans have been killed by Indonesian security forces including Kopassus members and the province has been compared with a police state.

The province remains a particularly sensitive issue for Indonesia and it is understood some of the material referred to former military leaders as murderers and criminals.

At the heart of the dispute is an apparent cultural insensitivity by Australian soldiers and an apparent over reaction by their Indonesian counterparts.

The Pancasila symbol, the national guiding principles for Indonesia.

Defence Minister Marise Payne has said an investigation iis underway.

"I would hope at the conclusion of the inquiry, when we're able to indicate to Indonesia the steps that have been taken in Australia to address any of these concerns, we'll be able to discuss resuming the relationship across the board then," Senator Payne told ABC Radio.

A group of Indonesian military staff college students was due to visit Australia but the trip was cancelled.

Indonesia's participation in an upcoming multi-national naval exercise is also in doubt.

The head of the Australian Defence Association says Indonesia's move is a "massive over reaction" and part of a tumultous bilateral relationship.

The head of Indonesia's military, General Gatot Nurmantyo. (Photo: AFP).

Neil James, the ADA executive director and a leading military advocate, said the reported material that offended Indonesian soldiers at the Perth army base was a slight against the Asian country's founding principles, known as Pancasila.

The term is used to describe the founding principles of the Indonesian state which has national unity, democracy, social justice and belief in one god at its core.

"Whatever the material was, the Indonesians believe it has insulted Pancasila. But this is a massive overreaction in a relationship that has been going on for about 50 years," Mr James said.

"They have seized on a minor insult by a lieutenant."

He believed the links between Indonesia's military and the Australian Defence Association would continue although it may "take some time" to fix.

Mr James said the relationship has survived previous rows and even conflict. During the Confrontation in the mid 1960s when Australian and Indonesian forces were fighting each other over disputed territory in Borneo, training links continued.

"We had staff exchanges then. Both countries simply turned a blind eye while their soldiers were engaged against each other."

Mr James, who has served for more than 40 years in the regular army and reserves, said a change in the leadership of the Indonesian military is linked to the freezing of ties.

"General Gatot Nurmantyo is not as pro Australian as his predecessors and I think this is important in considering the cause of all this."

In a speech he made last November, General Nurmantyo said Australia was trying to recruit his country's top soldiers as intelligence sources, a claim firmly denied by the Department of Defence.

Another commentator, retired Major-General Jim Molan, predicted the row would blow over.

Speaking on Channel Nine he said: I don’t think it’ll go for very long.”

“It really represents the kind of things that we try and manage in our incredibly important relationship with Indonesia all the time.”

He said it was probably caused by cultural unfamiliarity.

“We don’t know in great detail what caused this, but Australians can be insensitive and irreverent on occasions and Indonesians can be oversensitive and I think that’s where we stand at the moment.”

Major-General Molan also pointed to a probable slight against Indonesia's founding principles.

“It concerns the material that was used during a language training course over in Western Australia.

"It’s always a problem to find something to talk about to practice your language and apparently the issues that were raised were to do with Pancha Sila, the Indonesian philosophy of how the country is run with certain heroes…and also Papua which is very, very sensitive.”

“One of the (Indonesian) instructors on this course took offence at some of this and complained."