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.

Indonesian Ambassador to Malaysia Hermono told Reuters that the freeze had been 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 labor.

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.

Malaysian 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 labor".

In April, Indonesia and Malaysia renewed a long-awaited labor deal on Indonesian migrant workers in Malaysia, almost six years after the previous agreement lapsed. 

The memorandum of understanding (MoU) between Indonesia’s Manpower Ministry and the Malaysian Human Resources Ministry contains Indonesia’s proposed consolidation of migrant labor recruitment through its One Channel System. 

President Joko “Jokowi” Jokowi said at the time that he expected the system would allow both sides to monitor the entire migrant worker recruitment process. 

He also called on stakeholders from both sides to implement the MoU in its entirety and said the new deal would jump-start agreements in other areas, such as efforts to prevent human trafficking and improve law enforcement cooperation. 

An estimated 2.7 million Indonesian domestic workers are employed in Malaysia, but about half are considered illegal labor, according to data from the Indonesian Embassy in Kuala Lumpur.

Indonesian migrant workers face an array of issues in Malaysia, from overwork and abuse to getting caught up in legal troubles that can lead to a death sentences or even falling victim to trafficking rings smuggling illegal workers through the countries’ porous borders. 

Under the renewed deal, Malaysia is set to enforce more comprehensive rights for Indonesian migrant workers, while also allowing them to enter previously prohibited employment sectors. 

The two countries agreed to sign and renew their migrant labor deal periodically, which would give each side the opportunity to review the provisions. The last agreement lapsed and was not renewed after Indonesia passed a stronger migrant worker protection law in 2017.