Indonesia is considering putting its imminent trade deal with Australia on hold over the Prime Minister Scott Morrison's statement he would consider moving the Australian embassy in Israel to Jerusalem.

Key points: Australia and Indonesia on track to sign comprehensive free trade deal by year's end

Australia and Indonesia on track to sign comprehensive free trade deal by year's end The deal, 8 years in the making, will particularly benefit Australian farmers and education providers

The deal, 8 years in the making, will particularly benefit Australian farmers and education providers Indonesia's support of a Palestinian state is one of its most important foreign priorities



The landmark free trade agreement was cemented during Mr Morrison's first international trip as Prime Minister — and it was set to be signed before the end of the year.

Now it is in doubt over Mr Morrison's statement that he was open to moving Australia's embassy in Israel to Jerusalem, from Tel Aviv, according to one senior Indonesian Government source.

The ABC understands Foreign Minister Marise Payne spoke with her Indonesian counterpart, Retno Marsudi, by telephone on Tuesday morning.

Indonesia's support of a Palestinian state is one of its most important foreign priorities, meaning the Prime Minister's suggestion has not gone well in Jakarta.

A senior Indonesian source said Ms Marsudi had been "bombarding" her Australian counterpart with messages of concern.

Foreign ministers from both Governments were meeting in the Indonesian capital on Tuesday.

The source suggested the recently sealed, but not-yet-finalised, trade deal could be suspended.

Sorry, this video has expired The Prime Minister says no decision has been made on the recognition of Jerusalem as Israel's capital.

But Indonesia's Trade Minister, Enggartiasto Lukita, told Reuters in a text message there was "no such thing", adding that the agreement would still be signed this year.

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During Question Time, Mr Morrison told Parliament he had been in contact with Indonesian President Joko Widodo in the last day to discuss his position, as had the two foreign ministers.

"This is a regular part of our management of these foreign affairs relationships and I am pleased to be able to explain very clearly the nature of the announcements I have made today [Tuesday] and I have been very pleased with the response that [we] have received from President Joko Widodo and we'll continue to work closely and cooperatively with our allies and with our partners all around the world on these issues," Mr Morrison said.

The trade deal has been eight years in the making and should benefit Australian grain growers, with Indonesia agreeing to import 500,000 tonnes of grain tariff free.

Mr Morrison said in August negotiators had also secured lower tariffs, or greater access, on live cattle, dairy and horticulture.

The agreement should also benefit the Australian education sector, with universities and vocational training providers being given the green light to set up shop in Indonesia.

Indonesia wants greater access for Indonesians to work in Australia as well as support for its crude palm oil industry.

Mohamed Khairat, Egypt's ambassador to Australia, said representatives from 13 Arab countries met in Canberra on Tuesday, and would be sending a letter to Senator Payne, voicing their concern about Mr Morrison's comments.

"Any decision like that might damage the peace process … this will have very negative implications on the relations between Australia and not only Arab countries but many other [Islamic countries] as well," Mr Khairat said.

ABC/Reuters