The Palestinian Foreign Ministry on Tuesday accused Australian Prime Minister Scott Morrison of placing electoral concerns over his country's interest after the prime minister said he is considering moving Australia's embassy in Israel to Jerusalem.

Morrison on Tuesday said he is "open" to moving the embassy to the city, which is claimed by both Israelis and Palestinians. He said that Australia's former ambassador to Israel, David Sharma, who faces a crucial by-election on Saturday, proposed the policy shift.

"When the Australian prime minister took Israel's interests and the election campaign interests of his former ambassador to Israel, David Sharma, into consideration, he did not weigh the impact of this on his country's interests with the Arab and Islamic world," the Foreign Ministry said.

Morrison "ignored the votes of the Islamic and Arab communities in Australia while favouring the Jewish votes in David Sharma's district," the ministry added.

The Palestinians called on the prime minister to reconsider his statements

The Saturday election is key for the Morrison government, which holds a one-seat majority and faces a strong challenge from an independent.

Sharma's Sydney harbourside district contains the largest concentration of Jewish voters in the country.

Only two other countries - Guatemala and Paraguay - have followed US President Donald Trump's controversial decision to recognize Jerusalem as Israel's capital and move the embassy there. Paraguay's newly elected president reversed the decision four months after move.

Indonesia, the world's largest Muslim-majority country and a large trading partner with Australia, said that an embassy move would undermine a peace process between Israel and the Palestinians.

Indonesian Foreign Minister Retno Marsudi said she had conveyed her country's opposition to such a move to Australia.

"Indonesia encourages Australia and other nations to continue to support the peace process and not conduct any action that could undermine the peace process and global security," she said after talks with visiting Palestinian Foreign Minister Riyad al-Maliki.

"Indonesia is concerned about [Morrison's] remarks and has questions about the motive for the statement," she said.

Indonesia will provide 7 million dollars in aid for the Palestinians, including 2 million dollars through the United Nations Relief and Works Agency for Palestinian Refugees (UNRWA), the Foreign Ministry said in a statement after the meeting with al-Maliki.

Next year, Indonesia will also provide training to 90 Palestinians in good governance, agriculture and empowerment of women as well as providing scholarships to Palestinian students who wish to study in Indonesia, it said.  

Indonesian Foreign Ministry spokesman Arrmanatha Nasir declined to comment on a report by Australian broadcaster ABC that Jakarta was considering putting a trade deal due to be signed soon with Australia on hold over Morrison's comments.

Morrison said no decision had been made to move Australia's embassy from Tel Aviv to Jerusalem, but he said arguments in favour of such a move were "persuasive."

He said there had been no discussion on the matter with the US.

Indonesia has also criticized the US embassy move and warned that it would threaten the peace process.  

Indonesia does not have diplomatic relations with Israel and is a strong supporter of the Palestinian quest for nationhood.