JAKARTA - Indonesia on Tuesday (Oct 16) expressed concern over Australia's announcement that it was open to moving its embassy in Israel to Jerusalem, but stressed that a landmark trade deal between the two countries - due to be signed by year-end - has not been derailed.

The Australian Broadcasting Corporation had earlier in the day reported that Indonesia is mulling putting the Indonesia Australia Comprehensive Economic Partnership on hold, citing a senior government source.

But Indonesian Trade Minister Enggartiasto Lukito denied this, telling Reuters that there was "no such thing". The deal was on track to be signed this year, he added.

The fate of the Indonesia-Australia pact came under scrutiny after Australian Prime Minister Scott Morrison told reporters on Tuesday that he was "open-minded" to proposals to formally recognise Jerusalem as the capital of Israel.

Foreign Minister Retno Marsudi spoke to her Australian counterpart Marise Payne, and Mr Morrison had also spoken to President Joko Widodo on the possible embassy move, said foreign ministry spokesman Arrmanatha Nasir.

Indonesia had conveyed "our strong concern on the announcement, and question the merit of the announcement", said Ms Retno.

"Indonesia would like to reiterate its position that a two-state solution must be upheld as a basic principle for peace to occur sustainably between Palestine and Israel," she said in a joint press conference with Palestinian Foreign Minister Riyad al-Maliki, who is in Jakarta on an official visit. She added: "Indonesia asks Australia and other countries to continue supporting the Palestine-Israel peace process in accordance with the principles that have been agreed, and to not take steps that may threaten the peace process and world stability."

The pair had over the weekend launched the Solidarity Week for Palestine event in Jakarta, to signal Indonesia's longstanding commitment to the Palestinian cause.

Mr al-Maliki during the press conference said Palestine greatly appreciated President Joko and Ms Retno communicating with Australian officials on Mr Morrison's statement.

"This is of great importance to remind them that this does not go with international law, with international relations… and puts Australia in contradiction to the rest of the world when it comes to Jerusalem and the status of Jerusalem," he said. "Indonesia even before we asked them to act, they did it on their own. And they were the first country to act immediately on this. This is something that we have to appreciate, we have to remember and we have to thank Indonesia for this commitment to peace, to justice, this commitment to international law… to the relationship within countries."

Australia, he stressed, had violated international law and disrespected United Nations Security Council resolutions.

"Australia by doing so is risking its trade and business relationship with the rest of the world, in particular the Arab and Muslim world," said Mr al-Maliki. "And I hope that Australia will re-consider that position before it takes such action for election purposes."

US President Donald Trump had in December declared his decision to do just that, breaking with diplomatic tradition and rankling Muslim-majority nations, including Indonesia and Malaysia.

Talks on the Indonesia-Australia agreement kicked off in 2010, but diplomatic spats over the years - including disagreement over the execution of Australian citizens, and tensions over Australia sending boats of asylum seekers back into Indonesian waters - have stalled negotiations.

The negotiations were finally concluded in August, with Mr Morrison - in Jakarta for his first trip overseas after taking over from his predecessor Malcolm Turnbull - declaring that the pact would be a "massive win-win" for the two countries

Among other things, the agreement will make it easier for Australian universities and health providers to set up operations in Indonesia, and boost trade in key areas such as cattle.

Veteran Australian diplomat John McCarthy criticised Mr Morrison's announcement, telling The Sydney Morning Herald that the move would be "very poorly regarded internationally".

"It will damage our relations with Islamic states in the Middle East but, most important, it will have implications for our dealings and the way we are seen in Indonesia and Malaysia," he said. "You have to bear in mind that the reaction in both those countries to Trump's decision was extremely sharp. Now we are part of the region, and that makes it a really serious issue for us."

The timing of Mr Morrison's announcement, Mr McCarthy added, came at a particularly bad time with presidential and general elections poised to take place in Indonesia next year.

"Islamic issues are becoming particularly prominent," said Mr McCarthy. "I'm not sure to what degree the PM and the people immediately around him are focused on this issue, but they should be aware of these sensitivities."

Meanwhile, Israeli Prime Minister Benjamin Netanyahu said on Monday at a Christian conference that he is keen to promote diplomatic relations with Indonesia, the world's most populous Muslim nation.

His country and Indonesia have no formal diplomatic ties.

Earlier this year, Indonesia denied visas to dozens of Israeli nationals - a move that many suspect was motivated by the killing of more than 140 Palestinians by the Israeli security forces on the Gaza border. Israel responded by imposing a brief ban on Indonesian tourists.

"Indonesia is very, very important for us," said Mr Netanyahu at the International Christian Media Summit in Jerusalem, adding: "Indonesia is over 200 million people. It has Muslims. It has tens of millions of Christians. We would like to see them here. We would like to have an excellent relationship with them… I will work on the visas, see what I can do."

The timing of Mr Morrison's announcement, Mr McCarthy added, came at a particularly bad time with presidential and general elections poised to take place in Indonesia next year.

"Islamic issues are becoming particularly prominent," said Mr McCarthy. "I'm not sure to what degree the PM and the people immediately around him are focused on this issue, but they should be aware of these sensitivities."

Meanwhile, Israeli Prime Minister Benjamin Netanyahu said on Monday at a Christian conference that he is keen to promote diplomatic relations with Indonesia, the world's most populous Muslim nation.

His country and Indonesia have no formal diplomatic ties.

Earlier this year, Indonesia denied visas to dozens of Israeli nationals - a move that many suspect was motivated by the killing of more than 140 Palestinians by the Israeli security forces on the Gaza border. Israel responded by imposing a brief ban on Indonesian tourists.

"Indonesia is very, very important for us," said Mr Netanyahu at the International Christian Media Summit in Jerusalem, adding: "Indonesia is over 200 million people. It has Muslims. It has tens of millions of Christians. We would like to see them here. We would like to have an excellent relationship with them… I will work on the visas, see what I can do."