Defence Minister Robert Hill said the air-to-surface missiles acquired under the 350 million to 450 million dollar (248-317 million US) programme could destroy targets up to 400 kilometres (250 miles) away.

The missiles will enter service between 2007 and 2009, when they will be used on F/A-18 Hornet fighters and AP-3C Orion maritime surveillance aircraft.

"Combined with the new air-to-air missiles and upgraded precision-guided bombs, Australia's fighter jets will be the region's most lethal capacity for air combat and strike operations," Hill said.

Indonesia expressed concern about the plan, questioning why Australia was beefing up its offensive capacity.

"We are talking here of an offensive capability, no longer defensive capability, and we have to ask ourselves against whom is this long-range cruise missile being directed," said foreign ministry spokesman Marty Natalegawa.

Foreign Minister Alexander Downer said Australia's regional neighbours had been kept informed of the plan and further briefings were being organised in Indonesia, Singapore, Malaysia and Thailand.

"We're not threatening our northern neighbors," he said. "We are at peace and have a happy relationship with all of our northern neighbors."

However, the Labor opposition said it hampered the fight against terrorism.

"What has it done to explain this to the countries in the region with whom we must be associated in the struggle with fundamentalist terror?" opposition defence spokesman Kim Beazley said.

"As far as I can see, the government has made absolutely no effort. In normal circumstances that would be bad, but in circumstances where we need to be alongside them, it's very foolish indeed."

Hill denied it would trigger an arms race. "In the same way as Indonesia and all our regional neighbours continue to build their capabilities, they expect Australia to do so," he said.

A recent poll found the Australian public see Indonesia as the country's greatest external threat.

Prime Minister John Howard said defence decisions were based on Australia's defence interests.

The missiles are intended to substitute partly for the ageing F-111 strike bombers, due to be phased out by 2010. A leading military analyst said with the new missiles the F/A-18s would have at best 75 percent of the F-111s' range.

Aldo Borgu, an analyst at the Australian Strategic Policy Institute, said Australia must carefuly explain the programme to its neighbours if it wanted to avoid upsetting them.

Borgu pointed out that Australia's neighbours were also modernising.

"I would not say there's an arms race. There's certainly a military modernisation going on. We don't necessarily live in a benign environment in our region."

The three missile options being considered by Canberra are Lockheed Martin's Joint Air-to-Surface Stand-off Missile, German company Taurus Systems' KEPD 350 precision-attack cruise missile and Boeing's Stand-off Land Attack Missile - Expanded Response. A decision will be made next year.

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