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.

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