Louise Williams, Jakarta – Indonesia's largest Muslim organisation has decreed that street protests and labour strikes are permitted under Islam, a religious ruling which could directly challenge some of the Soeharto Government's laws on labour organisation and political opposition.

Leaders of the 30 million strong Nahdlatul Ulama (NU) Muslim organisation issued their ruling at their national convention, saying that protests and strikes could be used in "persuading society to do good, and discouraging bad".

The Islamic leaders also said economic monopolies were only acceptable if they were controlled by the government for "people-oriented" activities, not by private business for profit. A number of controversial private monopolies are controlled by members of President Soeharto's family, including the lucrative clove monopoly of the President's son, Hutomo "Tommy" Mandala Putra.

The convention decreed that protests should only be used if people fail to reach agreements with the government or their employers and should not turn violent. The Soeharto Government limits labour protests to within the grounds of the work place and imposes strict controls on anti-government protests.

The economic crisis is likely to force tens of thousands of lay-offs in the next few months. Last week about 40,000 workers were on strike in the NU stronghold of East Java over reduced working hours.

The NU ruling comes at a time of increasing criticism of the ruling elite from Indonesia's second largest Islamic organisation, Muhammadiyah, with about 28 million members. The Muhammadiyah leader, Mr Amien Rais, is a vocal critic of government nepotism and corruption and has said Mr Soeharto should step down.

The issue of corruption and justice is likely to come into ever sharper focus as the economic downturn pushes millions of ordinary Indonesians out of work, while the elite continue to enjoy a lifestyle of luxury.

Adding to the tension is the fact that business in Indonesia is dominated by the non-Muslim ethnic Chinese minority, with most of the working class being Muslims.

On Wednesday, a state-owned workers' insurance company, Jamsostek, admitted paying 3.1 billion rupiah ($A1.4 million) to MPs who debated labour legislation earlier this year. Jamsostek said the funds were drawn from an allocation for "the protection of workers".

Labour activists said it was ironic that payments were allegedly paid to push through legislation which has been widely criticised by workers. Earlier this week, the Government told public servants they could not expect a pay rise, despite spiralling inflation, saying they were fortunate to have work and "should suffer with the rest of the people".