Indonesia has called on Australia and the United Nations to "promptly recognise the State of Palestine" following Prime Minister Scott Morrison's move to recognise West Jerusalem as Israel's capital.

In its statement obtained by Fairfax, the Indonesian foreign ministry said "Jerusalem is one of the six issues that must be negotiated and decided, as a final part of a comprehensive peace between Palestine and Israel, within the framework of a two-state solution".

"Indonesia calls on Australia and all member states of the UN to promptly recognise the State of Palestine and to co-operate towards the attainment of sustainable peace, and agreement between the state of Palestine and Israel based on the principle of two-state solution."

Official response from the Indonesian foreign ministry to the Jerusalem decision. Relatively restrained. But no mention of when the FTA will be signed. And the million dollar question is whether, or to what extent, domestic politics will influence what happens next. @smh @theage pic.twitter.com/Eg1dkJzdiN — James Massola (@jamesmassola) December 15, 2018

A delayed multi-billion-dollar trade deal with Indonesia is now expected to be on shaky ground as a result of the announcement.

It comes as Australia's Department of Foreign Affairs warned Australian travellers heading to Indonesia to be aware of protest activity in Jakarta.

Mr Morrison confirmed the decision in a speech in Sydney on Saturday following months of speculation.

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The idea was first floated during the dying days of the Wentworth by-election and drew criticism from political rivals as a cynical ploy to buy votes in the largely Jewish electorate.

It also attracted rebukes from South East Asian trading partners who feared the decision to wade into the multi-generational political quagmire could fuel unrest.

Israel's foreign ministry commended the move as a step in the right direction.

while Palestinian chief negotiator Saeb Erekat said the announcement was born of Australian "petty domestic politics."

Read more Why Scott Morrison moving the Australian embassy to West Jerusalem would be a big deal

But the government says it will also recognise East Jerusalem as Palestine's capital though only after a settlement has been reached on a two-state solution.

The Australian embassy won't be moved from Tel Aviv to West Jerusalem until that solution is reached.

Mr Morrison defended the move saying it was about exploring options that could help bring about a two-state solution and conclusion to the political stalemate.

The Arab League's Assistant Secretary-General for Palestine and the Occupied Arab Territories, Saeed Abu Ali, condemned Australia's decision as a break with the international community's positions that disregards international law.

In a statement, he said it was "blatantly biased towards the positions and policies of the Israeli occupation".

The Executive Council of Australian Jewry said the move constituted "a simple acknowledgement of a reality that has existed since 1950".

“Recognising that Israel’s seat of government is located in the western part of the city, which is incontestably sovereign Israeli territory, does not in any way impact upon or prejudge the future status of the contested eastern and other parts of the city captured by Israel in 1967," a statement from the council said.

The Australia/Israel and Jewish Affairs Council said it welcomed the move, saying the prime minister deserved credit for the policy shift.

"We welcome the decision to recognise the reality that for almost 70 years now, Jerusalem has been functioning for all intent and purposes as Israel's capital," spokesman Jeremy Jones said.

"It is where the parliament is, it is where the main administration offices are."