The authorities have asked the company to submit a proposal based on an onshore plant for the LNG project to be located in the Arafura Sea.

The notification is a response to a plan submitted by Inpex in September 2015, in which it had proposed a floating LNG plant with a capacity to process 7.5 million tonnes of LNG annually.

"The company will carefully examine the contents of the notification, and intends to work closely with the Indonesian government authorities aiming for the early start-up of development," Inpex said in a statement.

Last month, Indonesia’s president Joko Widodo discarded a proposal made by Inpex and its partner Royal Dutch Shell to build floating LNG plant, saying that having an onshore plant will be beneficial to Indonesia.

"This is a long-term project, not just a year or two, not just 10 years, 15 years, but a very long project involving hundreds of trillions of rupiah," The Wall Street Journal quoted Widodo as saying during a visit to the city of Pontianak, in West Kalimantan, last month.

"Therefore, from the calculations [and…] from the considerations I have counted, we decided it will be built on land," Widodo said.

A decision by Indonesian government to reject floating LNG is a major setback to both Inpex and Royal Dutch Shell, including Indonesia’s upstream energy regulator (SKKMigas), Reuters reported.

The regulator had cautioned that a rejection to a plan to process gas from the Masela field offshore could result in delays in the execution of the project and job losses.

Inpex owns 65% of the Abadi field is located in the Masela block, while Shell holds 35%. Last month, state-run Pertamina had expressed interest to buy nearly 20% stake in the block.