Tony Abbott, who is leading Prime Minister Kevin Rudd in opinion polls ahead of the September 7 vote, unveiled the plan last week, saying it would stop the leaky wooden vessels falling into the hands of people-smugglers.

Thousands of would-be refugees stage perilous sea journeys each year from Indonesia in a desperate attempt to reach Australia. Many have died when the rickety vessels sink.

But Mahfudz Siddiq, head of the Indonesian parliament’s foreign affairs commission, told AFP: “This is a crazy idea”.

“The idea is degrading and offensive to the dignity of Indonesians.”

“Obviously he (Abbott) doesn’t understand diplomacy or bilateral cooperation,” added Siddiq, from the Prosperous Justice Party, Indonesia’s biggest Islamic-based party and a member of the ruling coalition.

Abbott’s $400 million scheme would include a capped government buy-back plan for the vessels as well as stipends for Indonesian “wardens” in 100 villages to provide information to Australia and bounty payments for information leading to successful smuggling prosecutions.

Siddiq was also critical of Abbott’s plan “to use villagers as agents”.

“Indonesia is not Australia’s colony whose people can be bought for another country’s interest,” he added.

He said that buying boats from fishermen on the south coast of Indonesia’s main island of Java, where many asylum-seeker boats depart for Australia, would destroy livelihoods.

Rudd’s ruling Labor party has criticised the plan as “bizarre”. A spokesman for Indonesian President Susilo Bambang Yudhoyono previously declined to comment.

Asylum-seekers arriving by boat are a major political issue in Australia and tend to dominate election campaigns.

Both major parties have pledged a crackdown – the Labor government has signed an agreement with Papua New Guinea to banish boatpeople there for permanent resettlement even if found to have a valid refugee claim.