By Kanupriya Kapoor
JAKARTA (Reuters) - Indonesia's relations with Australia sank to their lowest since the turn of the century on Wednesday over reports Canberra had spied on top Indonesians, including the president's wife, threatening to hurt trade ties.
President Susilo Bambang Yudhoyono, whose wife's mobile phone was among those reportedly tapped, went on national television to announce that he was freezing military and intelligence cooperation, including over the issue of asylum seekers, that has long been a thorn in relations.
"It's clear that this is a logical step Indonesia must take," Yudhoyono said.
The public display of anger was triggered by media reports this week quoting documents leaked by former U.S. National Security Agency contractor Edward Snowden, that its spy agencies had tried to tap Yudhoyono's mobile phone and those of his wife and senior officials in 2009.
An Australian Defense Department spokesman said his ministry was seeking clarification on the moves and said it was not clear what the impact would be on bilateral ties. He declined to comment further.
Speaking earlier in parliament, Australian Prime Minister Tony Abbott expressed regret for the embarrassment the media reports had caused Yudhoyono.
"I do understand how personally hurtful these allegations have been for him and his family," he said. His government has declined to comment directly on the spying reports.
An Indonesian military spokesman told Reuters that the halt in military cooperation would take effect from the beginning of next year.
Relations last went into the freezer in 1999 when Australia sent troops into East Timor after Indonesia's military pulled out after embarking on a scorched-earth policy in the one-time Indonesian colony.
Ties with Jakarta have again turned increasingly prickly since Abbott took office in September, because of the spying reports and tension over how to prevent asylum seekers, most of them from South Asia, sailing from Indonesia to Australia.
Indonesian Trade Minister Gita Wirjawan suggested the chill could hit economic ties, with total trade worth more than $11 billion last year. Indonesia is a major importer of Australian agricultural products while Australia is Indonesia's 10th biggest export market.
"It is difficult if two neighbors can't trust each other to think about anything related to economic cooperation," he told reporters adding he strongly backed proposed new laws that would allow importers to bring in farm goods from any country.
Livestock products, for example, currently have to come from Australia or New Zealand.
"TOO CLOSE TO HOME"
Ruhut Sitompul, known to be a Yudhoyono confidant and a member of his ruling Democratic Party, said the president's angry reaction to the spying scandal was understandable.
"(He) has spent years trying to build a relationship with Australia and so he feels it's personal when they spy on him and his wife," Sitompul said. "He feels this is a personal attack on him as the head of state."
"Why is (his wife) even being tapped? She's the first lady and yes, she has influence on the president, but to a normal extent between husband and wife. So the president is not angry specifically because of his wife. He has told all of us in the government, in the party, to be rational about the issue."
Ani Bambang Yudhoyono, the daughter of one of Indonesia's most famous and controversial generals, is often portrayed as having significant influence over decision making.
The president took to Twitter on Tuesday to speak of his distress over the spying reports.
"Judging by (his) ... tweets and his over reaction, it seems the Aussies have hit a little too close to home," said an Indonesian businessman with links to Yudhoyono's inner circle.
"Ani is very influential and holds a lot of decision-making power. So spying on her ruffles feathers in the highest places and he is bound to react very angrily," said the businessman.
"Of course, there is a bit of posturing going on, he needs to look good and capitalize on any opportunity to make his party look good as we head to elections," he said.
The ruling party has been slipping badly in opinion polls ahead of next year's general and presidential elections, damaged by allegations of graft involving several senior members and also Yudhoyono's declining popularity as he enters the last and final year of his second five-year term.
(Additional reporting by Randy Fabi and Rieka Rahadiana in Jakarta, Lincoln Feast and Maggie Lu Yueyang in Sydney; Writing by Jonathan Thatcher; Editing by Robert Birsel)