Australia-Indonesia free trade deal delayed over embassy spat

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Australia's proposal of moving its embassy in the Middle East has caused delays to a free trade agreement in Asia.

A proposed free trade agreement between Australia and Indonesia has been delayed after Australia said it may consider moving its embassy in Israel to Jerusalem.

Indonesian trade minister Enggartiasto Lukita told reporters in Singapore this week that "it can be signed any time but when you will sign it ... depends on Australia's position [on the embassy]".

Foreign minister for the country Retno Marsudi has also said any agreements will be delayed if Australia insists on following in the footsteps of the US and relocating its embassy to Jerusalem.

Indonesia is the world's most populous Muslim country and strongly supports Palestine, so is said to be furious at Australia's decision to be considering a move.

Australian prime minister Scott Morrison arrived in Singapore this week for an ASEAN gathering and met with Widodo for the first time since the announcement over the embassy.

However, Australian treasurer Josh Frydenberg told the press the nation is not willing to cave in on the issue under political pressure from its allies.

"We'll determine the processes for where our embassies are located. That's not to be dictated to us by other countries. We would like to bring the free trade agreement to conclusion but, at the same time, we maintain our sovereignty and our flexibility in relation to foreign policy," he told Sky News.