Following allegation that Australia used its embassy in Jakarta and consulate in Bali to run spying operations across South-East Asia, Indonesia has summoned the Australian ambassador Greg Moriarty demanding answers.

The Fairfax media had earlier this week; quoted unnamed former intelligence officer that Australia used the embassy in Indonesia to spy on terrorists and people smugglers. Concerns in Indonesia, however, have grown as the key focus of the alleged intelligence gathering operation was "political, diplomatic and economic intelligence."

Indonesian foreign ministry also demanded clarification from Australia on media reports.

"The conduct as reported was not at all reflecting the spirit of friendly relations," a statement from the Indonesian foreign ministry said.

The statement said, surveillance would be "considered a serious breach of security which cannot be accepted".

Explaining its action in demanding an explanation, Indonesia acknowledged that both countries share wide ranging economic, political and security interests and are close partners in the region, however, it is the prerogative of host governments to seek clarifications from diplomatic representatives.

Papua New Guinea's Prime Minister Peter O'Neill also says he'll seek an explanation on the issue from the Australian government.

"I think those who are tapping into conversations should not be encouraged. We must be trusting to one another," Mr O'Neill pointed out.

"We live in a neighbourhood that should respect each other's privacy and, of course, communications between our own people."

If the Australian government or PNG's other allies want to listen to his phone calls "all they have to do is ask", Mr O'Neill quipped.

Australia's ABC News, meanwhile, quoted academic Professor Greg Barton, an expert on Indonesia at Monash University, saying the country would not be surprised by reports of Australian spying. He suggested that Indonesia's public statements are meant purely for a domestic audience.

"It's certain given what we know about the way that embassies and consulates work and the way that international intelligence works, nothing that's been revealed is surprising or unexpected," he said.

"I don't think the Indonesian foreign minister would be surprised by the move, but he has to go through the motions and call the ambassador in, and the ambassador has to be seen to be going in and explaining things. That's the way this works," Professor Barton said.