Scott Morrison intends to review the location of Australia's embassy in Israel before Christmas as he tries to salvage a free trade agreement with Indonesia.
Mr Morrison attempted to rescue the stalled Australia-Indonesia trade pact when he met Joko Widodo in Singapore on Wednesday.
It was their first face-to-face encounter since Mr Morrison announced he was considering moving Australia's embassy in Israel to Jerusalem.
Indonesia - the world's most populous Muslim nation and a key Palestine supporter - is furious at the potential relocation.
The leaders were due to sign the two-way trade deal this week but finalising the agreement has been put on hold until the embassy issue is resolved.
The mood at Wednesday's meeting on the sidelines of the East Asia Summit appeared frosty at first but tensions eventually thawed.
President Widodo asked for details of the potential Jerusalem move and a time frame for the review.
Mr Morrison told reporters an internal review of the embassy shift was under way.
"There will be consultation ... and that will go through the process of our national security committee and cabinet."
Asked whether the review would conclude before Christmas, he said: "That's our intention."
Despite Indonesian ministers confirming the embassy and free trade deal issues are inextricably linked, the prime minister said they were raised separately.
"The two issues were not linked in any way shape or form in our discussions," he said.
Mr Morrison said there was an "absolute understanding" of the trade deal's benefits for both countries but no date had been set to ink the agreement.
Liberal senator Eric Abetz fired off an incendiary tweet from Canberra.
Australia's Prime Minister Scott Morrison and Indonesia's President Joko Widodo at a bilateral meeting during the 2018 ASEAN Summit in Singapore. Source: AAP
"If Indonesia really wants to dictate Aus foreign policy on the middle east, should we rethink the $360 million each year we give them in aid?" Senator Abetz said.
"Instead, how about we calmly finalise this FTA which will lift many Indonesians out of poverty and assist Australian farmers and jobs."
Labor's foreign affairs spokeswoman Penny Wong said the embassy decision was harming Australia's economy, costing jobs and damaging one of the nation's most important relationships.
"The prime minister's visit to Singapore has now exposed in full the utter debacle created by Mr Morrison's desperate decision to trash decades of considered bipartisan foreign policy," Senator Wong told parliament.
Liberal senator Eric Abetz said Australia should rethink foreign aid to Indonesia if it continued to seek to dictate foreign policy.
However, Mr Morrison said Australia had always supported Indonesia's economic development and helped the country in times of crisis.
"That's our way, that's what we do," he said.
Scott Morrison with Indonesian leader Joko Widodo. Source: AAP
Indonesia's Trade Minister Enggartiasto Lukita has confirmed there will be no deal while Australia considers the Jerusalem move.
Foreign Minister Retno Marsudi has also stressed: "If Australia insists on moving its embassy to Jerusalem, the signing will be delayed."
Australian Trade Minister Simon Birmingham has committed to the deal being signed before Indonesians go to the polls in April 2019.
"We want to see it signed, Indonesia wants to see it signed, I'm confident that we will see it signed before then," he said in Singapore on Tuesday.
Australians are due to go to the polls in May, so even if the deal is signed, it is unlikely to be ratified by parliament until after.
Mr Morrison and President Widodo also discussed terrorism and the Sulawesi earthquake.
The Indonesian president was flanked by his defence, trade and foreign ministers, while Mr Morrison was accompanied by his trade minister, ambassador and foreign affairs advisor.
Also on the agenda were dealing with terrorism, radicalisation and foreign fighters returning from the Middle East.
