Indonesia's trade minister says he no plans to tear up the trade deal with Australia after Prime Minister Scott Morrison said he was "open" to moving Australia's embassy in Israel from Tel Aviv to the Jerusalem, despite earlier reports to the contrary.

Enggartiasto Lukitatold the Reuters news service that he still expects the deal to be signed before the end of the year.

But during Parliament's question time in Canberra, Mr. Morrison admitted that he "has been in direct contact" with Indonesian President Joko Widodo over the matter; this was after Labor leader Bill Shorten dinged the Prime Minister over the jobs that could be lost if Indonesia scraps the deal as earlier news reports suggested. 

Both Israel and the Palestinians claims Jerusalem as their respective capitals, although most of Israel's government agencies and financial institutions are in Tel Aviv.  When Donald Trump agreed to move the IS Embassy to Jerusalem, Israel praised him.  But it was seen by critics as confirmation of his bias in favor of Israel.  Experienced diplomats also noted that moving the embassy while the peace process is stalled takes away what could have been a significant reward at the end of the process for both sides to come to a negotiated settlement.

Indonesia maintains close relations with the Palestinian Authority, and refuses to recognize Israel until a peace agreement is signed.

Earlier, the Palestinians said Australia risks becoming an "international pariah" on foreign policy in the Middle East if it follows Trump's move. 

"Breaking with decades-long bipartisan support and defying international law and multiple UN resolutions would make Australia an international pariah on this important foreign-policy issue," said Izzat Abdulhadi, the representative of the Palestinian delegation in Australia.  "It would also erode Australia's claims that it is genuinely committed to the rules-based international order, making any future rebukes of countries that breach or show contempt for it wholly hypocritical."