Indonesia has suspended co-ordinated military co-operation with Australia amid an ongoing row over reports Canberra spied on Jakarta officials.
President Susilo Bambang Yudhoyono said the suspension included operations to stop people-smuggling, joint military exercises and intelligence exchange.
The move came after Jakarta recalled its ambassador from Canberra on Monday.
Reports of the spying allegations came out in Australian media from documents leaked by whistleblower Edward Snowden.
The leaked document showed that Australian spy agencies named Indonesian President Susilo Bambang Yudhoyono, the first lady, the vice-president and other senior ministers as targets for telephone monitoring, the Australian Broadcasting Corporation (ABC) and the Guardian said.
The alleged spying took place in 2009, under the previous government. Australia and Indonesia are key allies and trading partners.
“It is not possible that we can continue our co-operation when we are still uncertain that there is no spying towards us,” Mr Yudhoyono said.
He added he would also write to Australian Prime Minister Tony Abbott to seek an official explanation over spying allegations.
The decision came after Mr Yudhoyono met with top officials, including the recalled Indonesian ambassador to Australia, to discuss the country’s relationship with one of its closest neighbours, reports say.
“We’re not only reviewing our co-operation with Australia, we’re actually already implementing the downgrading of our bilateral relations with Australia,” Foreign Minister Marty Natalegawa also said on Wednesday.
He added that Australia “must take concrete steps” to “repair the almost irreparable damage “. He added that the relationship between both countries was “not business as usual”.
Mr Yudhoyono said on Tuesday that ties with Australia had been “damaged” over what he said was “hurtful action”.
Mr Abbot reiterated on Wednesday he regretted the embarrassment the media reports have caused.
However, he has also previously said he does not believe Australia “should be expected to apologise for reasonable intelligence-gathering operations”.
The document based on a presentation from the Defence Signals Directorate – now known as the Australian Signals Directorate – showed that agencies attempted to listen to Mr Yudhoyono’s calls at least once. They also tracked calls made to and from his mobile phone in August 2009.
The row is the latest in a series of spying allegations that have strained relations between the two allies, whose relationship include co-operation on asylum-seekers and anti-terrorism, among issues.
Earlier this month, Indonesia also expressed anger over reports that Australia’s Jakarta embassy was used as part of a US-led spying network in Asia.