The two engineers are accused of breaching South Korea's Defense Acquisition Program Act and leaking technology related to the KF-21, South Korea's homegrown fighter jet that is partially backed by Indonesia.

The raid started on Thursday and was continuing for a second day, an official at the security investigation bureau of Gyeongnam Provincial Police told Reuters.

A KAI spokesperson said the company was "actively cooperating" to ensure it could provide anything necessary for the police investigation to establish the truth.

The KF-21, developed by KAI, is designed to be a cheaper, less stealthy alternative to the US-built F-35, on which South Korea relies. 

An Indonesian foreign ministry spokesperson last month told reporters the Southeast Asian nation's government was gathering evidence about the allegations. 

The KF-21 was a strategic project for both countries and they would manage any problems arising from this cooperation as much as possible, the spokesperson said at the time.

South Korea and Indonesia resolved a dispute over funding for the joint fighter jet in 2022 and have since vowed to expand defence cooperation. 

There have been concerns in South Korea that its regulations were not strong enough to deter attempts to funnel technologies from high-tech companies. The Sentencing Commission, overseen by the Supreme Court of Korea, last year decided to toughen punishments and lengthen jail times for leaking technology.

In February, Indonesian Foreign Minister Retno LP Marsudi and her South Korean counterpart Cho Tae-yul discussed the fighter jet development project on the sideline of the Group of 20 Foreign Ministers' Meeting in Rio de Janeiro, Brazil.