Counter-terrorism and border security sources say the standoff over spying could have a serious impact on operations if the row isn't resolved and Indonesia stands firm on its threat to downgrade co-operation.

While there remains some doubt about the breadth and depth of Jakarta's cuts to co-operation with Australian authorities, experts warn that any halt to federal police work with Indonesian counterparts could, in particular, set back progress.

''It could undermine the whole of the current government's people-smuggling initiatives,'' one security source said.

Federal Police Commissioner Tony Negus said about 30 Australian officers are continuing their work in Indonesia for now, but refused to be drawn on whether they might be affected down the track.

''They're there at the moment. We have 30 people working in Indonesia and … the relationship over the years has been a very healthy one. That's all I'm prepared to say on it,'' he said.

''At the moment we continue to work as we have done and we'll continue to do that as long as we possibly can.''

President Susilo Bambang Yudhoyono has called for an end to some joint military exercises, joint maritime patrols on people-smuggling and some intelligence sharing - though he was not specific and did not mention the police co-operation.

A lightning-rod situation could develop if Australia were to pick up asylum-seekers in Indonesia's maritime search and rescue zone and attempt to take them back to Indonesia. Under international law, a ship that rescues people at sea must take them to the nearest landfall - in this case Indonesia.

This has been done at least once since the Abbott government took power. But one Defence source said it would be ''a very big call'' to try now, given the tensions, and probably would not be attempted.

Members of Australia's elite SAS regiment were preparing to head home after the ''Dawn Komodo'' joint counter-hijack and hostage recovery exercise with Indonesian counterparts Kopassus was cancelled.

Dave McRae, an Indonesia expert from the Lowy Institute who is currently in the country, said Dr Yudhoyono had little choice but to be firm, ''given that the Australian government had given him nothing to work with publicly''.

Nick O'Brien, a former counter-terrorism policeman with Britain's Special Branch, now head of the Australian Graduate School of Policing and Security at Charles Sturt University, said co-operation since the Bali bombings had been ''an Australian-Indonesian success story''.

''It would be tragic if that were lost. The only losers will be the Australian and Indonesian people.''

Spying Row With Indonesia May Weaken Australia's Defence