Indonesia has unexpectedly dumped much-vaunted plans for its first high-speed railway in favour of a slower and cheaper rail option, in a blow to Japan and China who have been fiercely competing to win the construction job.

President Joko Widodo was expected to award either China or Japan the multi-billion contract this week but instead the government announced Friday the project had been shelved, citing cost and feasibility concerns.

Chief economics minister, Darmin Nasution, summoned the Japanese ambassador on Friday to tell him that Indonesia would pursue a medium-speed rail option and throw open the bidding process to other competitors.

"I conveyed that Indonesia thanked them, but we wouldn't be continuing with the high-speed train project," he told reporters, adding he expected to inform the Chinese ambassador later in the day.

It is not yet clear whether Japan or China will throw their hat in the ring for the revised rail proposal, with the finer details of the project yet to be announced.

The two Asian powerhouses had been locked in a contest for months to build a high-speed railway connecting the sprawling capital Jakarta with the mountain-fringed city of Bandung about 160 kilometres (100 miles) away.

It was seen as a landmark infrastructure project for President Joko Widodo, who pledged upon taking office in October to overhaul Indonesia's ageing roads, rail and ports, but has struggled to get his agenda moving.

Tokyo, with its rail expertise and infrastructure record, seemed destined to build the high-speed rail line until Jakarta announced in April that China had entered the race with a counter offer.

Tokyo and Beijing had both intensified efforts to win the contract in recent months, dispatching lobbyists to Jakarta and sweetening deals to woo the administration.

But in the end it came to nothing, with the Japanese ambassador unable to hide his disappointment.

"I expressed my regrets," Japanese ambassador Tanizaki Yasuaki told reporters after meeting Nasution.

"However... we pay due respect to this decision. This was not an easy decision."

- 30 percent cheaper -

An independent review of the rail project commissioned by Widodo found a high-speed line was not appropriate for the short distance to Bandung, and a medium-speed line would be a fraction slower but 30 percent cheaper, presidential chief of staff Teten Masduki told AFP.

Where the previous arrangements with China and Japan required Indonesia either front up cash or enter joint ventures with state companies, the new proposal would draw on private finance to free up the national budget, he added.

Nasution said Japan and China would be invited to submit bids for the revised project once the details were finalised, but added countries with expertise in medium-speed rail, like Spain and France, would also be approached.

Top Japanese government spokesman Yoshihide Suga confirmed that the new line would not be financed or guaranteed by the state, quoting the Indonesian government, and said Japan would need to consider its options.

The Indonesian side "explained that it will be conducted purely as a private project", Suga said.

"Now, with this explanation, Japan will study how to proceed," he added.