Australia and Indonesia will sign a major defence treaty early next year in what Anthony Albanese has described as a "historic" moment.

Speaking alongside Indonesian President Prabowo Subianto in Sydney this afternoon, the prime minister announced that negotiations on the deal have been all but finalised.

The pact, which is expected to be formally signed in January, will significantly tighten the security relationship between the two nations.

"This treaty will commit Australia and Indonesia to consult at a leader and ministerial level on a regular basis on matters of security, to identify and undertake mutually beneficial security activities," Albanese said.

"And if either or both countries' security is threatened, to consult and consider what measures may be taken either individually

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