The freeze is the latest blow for Malaysia - the world's second-largest palm oil producer and a key link in the global supply chain - which is facing a shortage of some 1.2 million workers that could derail its economic recovery.

Indonesia's Ambassador to Malaysia, Hermono, told Reuters the freeze was imposed after Malaysia's immigration authorities continued using an online recruitment system for domestic workers that had been linked to allegations of trafficking and forced labour.

The system's continued operation violated the terms of an agreement signed between Malaysia and Indonesia in April, aimed at improving the protection of domestic workers employed in Malaysian households, said Hermono, who goes by one name.

Malaysia's Human Resources Minister S. Saravanan confirmed receiving a letter from Indonesian authorities informing him of the freeze. He told Reuters he would discuss the matter with the Home Ministry, which oversees the immigration department.

Malaysian companies had submitted around 20,000 applications for workers, about half of which were for jobs in the plantation and manufacturing sectors, according to Hermono.

Malaysia relies on millions of foreign workers, who mainly come from Indonesia, Bangladesh, and Nepal, to fill factory and plantation jobs shunned by locals.

But despite lifting a pandemic freeze on recruitment in February, Malaysia has not seen a significant return of workers amid slow government approvals and protracted talks with source countries over employee protections.

There have been growing concerns in recent years over the treatment of migrant workers, with seven Malaysian companies banned by the United States in the last two years over what it described as "forced labour".

Australian Associated Press