Indonesia has said that talks with Australia over people smuggling and asylum seekers have stalled because of the phone-tapping row, flatly contradicting Immigration Minister Scott Morrison.

As Indonesian President Susilo Bambang Yudhoyono declined for the third day to make a public statement about the letter he has received from Prime Minister Tony Abbott, the extent of the damage wrought by the spying revelations is becoming increasingly clear.

Serious talks: Joe Hockey and Tony Abbott in cabinet on Monday. Credit:Andrew Meares

Indonesia's national police have confirmed they will make no attempt to catch asylum seekers leaving Indonesia on boats. They have withdrawn co-operation from the Australian Federal Police over cyber crime and terrorism operations. The chief of the Indonesian national police, General Sutarman, was reported by website Vivanews as saying: "Their intention is to go there, so it is not in our authority [to prevent them]."