Canberra has drawn ever nearer to longtime ally Washington, bolstering its military in an attempt to deter the might of a rising China in the Asia-Pacific region.
Jakarta has walked a more neutral path, wary of drawing too close to Washington and far less willing to needle Beijing.
Prime Minister Anthony Albanese, speaking alongside President Prabowo Subianto at a Royal Australian Navy Base in Sydney, said they had "just substantively concluded negotiations on a new bilateral treaty on our common security".
"This treaty is a recognition from both our nations that the best way to secure... peace and stability is by acting together," Albanese told reporters.
The Australian leader said he hoped to visit Indonesia next year to sign the new treaty.
He said the agreement builds on a bilateral defence pact signed in 2024, which pledged closer cooperation in the contested Asia-Pacific region and included provisions for each military operating in the other country.
Thousands of Indonesian and Australian troops held joint drills in eastern Java months after the 2024 accord was signed.
- 'Emerging threats' -
The new agreement will commit Australia and Indonesia to "consult at a leader and ministerial level, on a regular basis on matters of security", Albanese said.
It will also facilitate "mutually beneficial security activities, and if either or both countries' security is threatened, to consult and consider what measures may be taken, either individually or jointly, to deal with those threats", he said.
Prabowo said the deal committed the two countries to "close cooperation in the defence and security field".
"We cannot choose our neighbours... especially countries like us," he said.
"Good neighbours will help each other in times of difficulties," Prabowo added.
Australia hopes to cement closer ties with Indonesia as the region is rattled by rivalry between China and the United States.
Indonesia and Australia, separated by less than 300 kilometres (185 miles) at their closest point, have charted different courses while navigating that geopolitical upheaval.
In August, Australia took part in joint military drills with Indonesia, the United States and other allies.
Canberra has also sought to forge closer military ties with other Pacific neighbours in a bid to counter Beijing's rising influence.
It agreed to a new defence treaty with Papua New Guinea in September that will see the two nations commit to defending each other from armed attacks and "emerging threats" to their security.
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