Japan said Tuesday its bid to build a major railway in Indonesia had been rejected with China instead to be awarded the project, slamming the decision as "extremely regrettable".

China and Japan had for months been vying to build a new railway in Indonesia, as Asia's two biggest economies increasingly battle for influence across the region.

Indonesia had originally invited bids for its first high-speed railway between the capital Jakarta and the mountain-fringed city of Bandung, but unexpectedly changed plans this month and opted instead for a cheaper and slower option on the same route.

China and Japan submitted new proposals. But Japan's top government spokesman Yoshihide Suga said an Indonesian government envoy had informed him Tuesday that Tokyo's bid had been rejected.

"Japan offered the best possible proposal," he told reporters. "The envoy came here to explain that the Indonesian government has welcomed the Chinese proposal.

"I can't understand that at all. I frankly told the envoy that it was extremely regrettable."

He said China's new proposal did not involve the Indonesian government taking on any financial burden, or guaranteeing the project, adding: "It is an unthinkable proposal for our country."

The Indonesian government did not immediately confirm the decision. However, State-Owned Enterprises Minister Rini Soemarno suggested the Japanese bid had lost.

"The government stressed that (the project) should not have government funding nor a guarantee -- Japan's proposal asked for a government guarantee," she said.

The rail project is a key part of President Joko Widodo's drive to build more infrastructure. He pledged upon taking office in October to overhaul Indonesia's ageing roads, railways and ports but has struggled to get his agenda moving.

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

Japan's loss came despite its reputation as a world-class train maker.

The country is famous for its legendary shinkansen bullet trains which for decades have whizzed between cities without a single fatal accident.

China has countered this by arguing it has built thousands of kilometres of high-speed railway in the 12 years since it began constructing bullet trains. But its safety standards have come under scrutiny -- a 2011 crash killed at least 40 people and injured about 200.