Indonesia plans to move its capital city away from congested and sinking Jakarta to Nusantara, a $US32 billion ($A49 billion) city under construction in the jungles of East Kalimantan on Borneo.

The city is a flagship project of outgoing President Joko Widodo, who pledged to redistribute wealth and development currently concentrated in Java, across the archipelago.

An "agglomeration" council will be created to harmonise development plans between Jakarta and its satellite cities, according to a copy of the new law dated March 18 seen by Reuters.

Home Affairs Minister Tito Karnavian said after deliberation in parliament that Jakarta should still be improved to compete with other "world class cities" once the seat of government has been moved to Nusantara.

"After it's no longer a capital, it still has to be sealed with a special status so that it can accelerate economic growth and to increase contribution to the country's GDP," he said.

Under current rules, Jakarta will remain Indonesia's capital until the president issues a decree officially naming Nusantara as the new capital, which is expected sometime this year.

The government is expected to hold 2024's independence day ceremony on August 17 in Nusantara and thousands of civil servants are expected to move there by end of this year.

Australian Associated Press