JAKARTA (AFP) - Indonesia's trade minister on Friday (Aug 9) threatened to impose higher tariffs on European Union dairy imports in response to the bloc's proposed move to hit biodiesel made from palm oil with anti-subsidy duties.

The warning could escalate a trade dispute with the EU after Indonesia - the world's top palm oil producer - hit out at the bloc's plan to cut its use of palm-based biofuels by 2030.

Palm oil is the world's most widely used vegetable oil and a key ingredient in a wide range of products from food to cosmetics.

But environmentalists say it drives deforestation, with huge swathes of South-east Asian rainforest logged in recent decades to make way for palm plantations.

On Friday, trade minister Enggartiasto Lukita said he had told Indonesia's dairy importers to look for new suppliers outside Europe, and threatened to hike existing tariffs on EU dairy products, which currently range from 5-10 per cent.

That was in response to an EU proposal for anti-subsidy duties of 8-18 per cent on palm biodiesel from Indonesia, he added.

"I've spoken with dairy importers here and told them that they'd better look for other suppliers outside Europe," Mr Lukita told a business forum in Jakarta.

"(The EU) wants to impose an 8-18 per cent tariff (on palm biodiesel) so to make it fair, we will also impose the same tariff when the time is right.

"We're not going to be quiet about this unfair treatment."