Indonesia summonsed Australia's ambassador on Friday to explain media reports his embassy in Jakarta was used to spy on Southeast Asia's biggest country as part of a U.S.-led global spying network.
Indonesia this week called in the chief U.S. diplomat in Jakarta over similar allegations, while China on Thursday demanded an explanation from the United States after the Sydney Morning Herald newspaper reported Australian embassies across Asia were part of the U.S. spying operation.
News of Australia's role in a U.S.-led surveillance network could damage relations with Indonesia, Australia's nearest Asian neighbour and a key strategic ally.
"Indonesia's Foreign Minister Marty Natalegawa has demanded an explanation from the Australian ambassador in Jakarta about the existence and use of surveillance facilities in the Australian embassy here," Indonesia's foreign ministry said in a statement.
"The reported activities absolutely do not reflect the spirit of a close and friendly relationship between the two neighbours and are considered unacceptable by the government of Indonesia."
The Herald said its reports were based on U.S. whistleblower Edward Snowden and a former Australian intelligence officer.
Snowden leaks to other media have detailed vast intelligence collection by the U.S. National Security Agency (NSA) on allies, including German Chancellor Angela Merkel, prompting protests and a U.S. review of intelligence gathering.
Natalegawa, in Australia for a meeting with his counterpart Julie Bishop and other regional foreign ministers, said the reports of spying by Australia and the United States were likely to be raised "in a more concerted way" by other countries.
"The fact that certain countries may have certain capacities to gather information in the way that they have, that's one thing, but whether you would want to put that into effect and therefore potentially damage the kind of trust and confidence that have been nurtured and developed over many decades and years is something that we may want to ponder," he told reporters in Perth in western Australia.
"I think we have been able to communicate to Foreign Minister Bishop about our concern."
The Department of Foreign Affairs and Trade did not immediately reply to requests for comment. In an earlier response to the surveillance allegations, a spokeswoman said: "It is the long-standing practice of Australian governments not to comment on intelligence matters."
The Australian ambassador is scheduled to meet Indonesian officials in Jakarta on Friday over the matter, a foreign ministry spokesperson confirmed.
Bilateral relations were already shaky after Australia's new conservative prime minister, Tony Abbott, in September proposed turning back boats of asylum-seekers coming through Indonesia.
Abbott made his first official trip overseas to Jakarta last month where he sought to played down tensions over the asylum seekers issue and called instead on both countries to focus on boosting bilateral trade.