JAKARTA (REUTERS) - Bids were expected from China and Japan for a medium-speed rail project in Indonesia that will be 40 per cent cheaper than the US$6 billion (S$8.5 billion) bullet train project that Jakarta scrapped last week, an Indonesian minister said in an interview on Sunday.

China and Japan were disappointed by the cancellation of the high-speed rail project, announced by the government last Friday, but could renew rivalries to build the medium-speed rail link between the capital Jakarta and the third-largest city, Bandung.

"Both China and Japan are still interested in the medium-speed train," Coordinating Minister for Maritime Affairs, Rizal Ramli, told Reuters.

"Indonesia is just the first battlefield between China and Japan," Ramli said, adding, "there are other countries that would be interested in similar projects so the stakes are high."

A Japanese embassy official in Jakarta said the Japanese government would not be bidding, but that Indonesia had invited private Japanese companies to participate.

State Enterprises Minister Rini Soemarno said last Friday that Japanese requests for government guarantees and government loans for state-owned enterprises were too burdensome for Indonesia, and had not been sought by China.

"If Japan wants to stay in the process they must get rid of the requirement for government guarantees and government loans to SOEs," said Soemarno, who has been tasked by President Jokowi Widodo with choosing the winner.

Soemarno said Indonesia hopes to start construction on the 150km Jakarta-Bandung line by the year-end.

While the high speed line between Jakarta and Bandung had been deemed unviable, Ramli said the government would consider proposals over the next one or two years for a bullet train on a 700km line crossing Java.