Indonesia has revoked a contract with US energy giant ExxonMobil to develop the Natuna offshore gas field.
Exxon has a number of energy projects in Indonesia
Exxon has spent $350m (£189m) exploring the field but is finding the gas costly to extract and difficult to sell.
Indonesia's oil minister has said that state energy firm Pertamina could be given the rights to develop the field.
Exxon insists that its contract to develop the site runs until 2009, and that it has made "significant" progress in finding a buyer for the gas.
Indonesia needs to bring the field online quickly to boost its dwindling gas output, and analysts expect the dispute to be resolved.
A prolonged row with ExxonMobil could damage the country's reputation among the foreign investors that Indonesia needs to help ramp up oil and gas production.
Exxon has a number of energy projects in the country, and BP is working on a major gas field in Tangguh.
The Natuna D-Alpha gas field is thought to have 46 trillion cubic feet of recoverable reserves, accounting for about 25% of Indonesia's total gas reserves.
Developing the site is expected to cost up to $30bn because the gas is of low quality and has a high carbon dioxide content, making it difficult to extract and process.
Although Indonesia is one of Asia's largest producers of natural gas and oil, production has declined in recent years because of a lack of investment in developing new fields.