Indonesia has recalled its ambassador in Canberra back to Jakarta following disclosures that Australia tapped the phone of President Susilo Bambang Yudhoyono.
Foreign Minister Marty Natalegawa announced on Monday afternoon the ambassador would be recalled.
"It's nothing less than an unfriendly act," Dr Natalegawa said of the spying claims.
Legal, Political and Security Affairs Coordinating Minister Djoko Suyanto earlier said he would demand Australia make a public explanation about the claims and make a commitment that it would not monitor the phones again, AAP reports.
Secret documents from Australia's Defence Signals Directorate, leaked by a fugitive US intelligence whistleblower and published by the ABC and The Guardian, list 10 officials and their phone details - beginning with President Susilo Bambang Yudhoyono and his wife.
Air Marshal Suyanto also said Indonesia would review the exchange of information with Australia and "all other cooperation".
Australian Foreign Minister Julie Bishop will be told the issue will have a negative impact on the countries' bilateral relationship.
AAP reports Dr Natalegawa emphatically condemned the Australian actions.
"It is, I want to make it absolutely clear, an unfriendly act unbecoming of relations between strategic partners," he said.
"It violates every single decent and legal instrument I can think of; national in Indonesia, national in Australia, international as well.
"It is nothing less than an unfriendly act which is already having a very serious impact on bilateral relations."
The ABC reports he also responded to a statement to parliament by Prime Minister Tony Abbott that all governments gather information on each other.
Dr Natalegawa replied: "I've got news for you. We don't do it."