An Indonesia police anti-terrorism squad has shot dead six fighters and arrested another in an all-night standoff at a house near the capital Jakarta, officials said.

Brigadier-General Boy Rafli Amar, a National Police spokesman, said the shootout started late on Tuesday when most Indonesians were preparing for New Year's Eve celebrations and ended Wednesday.

Intelligence gathered from earlier arrests allowed police to storm hideouts in Ciputat on Jakarta's southern outskirts.

He said those who were killed had refused to surrender and instead fired guns and lobbed homemade bombs at security forces, injuring one police officer.

Police spokesman Ronnie Sompie said that they had seized explosive materials and firearms from the house.

Police believe the men are part of a larger group involved in robberies carried out to fund "terrorist activities", mainly aimed at police, and also plan to investigate any links to a plot to bomb the Myanmar Embassy.

Earlier on Tuesday, police arrested a suspected terrorist for his alleged role in a suicide bombing on a police station and fighter training activities.

Most-wanted terrorism suspect

Indonesia's anti-terrorism police squad, Detachment 88, arrested Ato Margono for escorting a suicide bomber to a police station on the island of Sulawesi in June, National Police spokesman Boy Rafli Amar told AFP news agency.

The bomber killed only himself and injured a construction worker with the bomb made of nails.

Margono is linked to the country's most-wanted terrorism suspect, Santoso.

"He was involved in a number of terrorist activities, and he is believed to have shot a villager dead in a separate incident," Amar said.

"The suspect is also accused of carrying out a garage bombing and fundraising to finance terrorist activities"

"He has also worked as a courier for the Santoso network, and is connected with militant training in Poso," he said.

Police have arrested 12 alleged members of the Santoso group this year, Amar said.

About 6,500 police have been deployed in Jakarta and surrounding areas on New Year's Eve and New Year's Day.