Lindsay Murdoch, Jakarta – Investors took fright yesterday as thousands of protesters blockaded the tightly guarded palace of President Abdurrahman Wahid and his most senior minister warned the country was on the brink of collapse.

The rupiah fell to its lowest level since late 1998, below 11,000 to the US dollar. The stock market also plunged 5.5 per cent, hitting a two-year low.

Mr Wahid responded with a call to his vice-president, Ms Megawati Sukarnoputri, to take a more active role in government.

The market jitters followed an extraordinary statement issued at the presidential palace by, the chief politics and security minister, Mr Susilo Bambang Yudhoyono.

Uncertainty over Mr Wahid's future would have severe consequences for the country, he said. "This uncertainty will have a severe impact, not only on the political front, but also in our economic, social and security fields."

As speculation grew about what motivated Mr Yudhoyono's comments, Mr Wahid reaffirmed that he had no intention of resigning.

"I don't want to resign; I want to maintain this country's integrity." If he was forced from office the archipelago would break apart, he warned.

His statement came as protesters, many of them students from Islamic groups, chanted anti-Wahid slogans in one of the biggest rallies against his 16-month rule.

"The problem here is president Wahid," said Mr Taufik Riyadi, a student leader. "We have come to conclusion that he must go. If the parliament's members make too many mistakes we are going to crush them too."

But smaller groups rallied in support of Mr Wahid, the country's first democratically elected leader, and workers failed to respond to student calls for a national strike. Rival protesters hurled stones and abuse at each other at the gates of the palace as Mr Wahid's cabinet met inside.

With the protests raging and the financial markets shuddering, the Cabinet discussed a 20 per cent fuel price rise demanded by the International Monetary Fund that observers fear could spark rioting among the poor. It also considered measures to help stabilise the rupiah.

Mr Yudhoyono said the uncertainty would last until July or August if national leadership, stability and security were not quickly resolved. He urged co-operation among the political leaders, including Ms Megawati and parliament leaders Dr Amien Rais and Mr Akbar Tanjung.

Mr Yudhoyono, a former top military officer, said a formal censure motion issued by parliament last month was not only a blow to Mr Wahid but to the entire government.

Mr Wahid has made it clear he is prepared to give the go-ahead for thousands of his supporters to take to the streets if an attempt is made to remove him unconstitutionally.

Mr Yudhoyono said: "The word is peace and order, no matter how large the mass demonstrations are."

He indicated that the Government expected the army to back police in maintaining order. Though the expression national security and stability had a militaristic connotation, "without it this nation would be a sea of chaos, violence and tension," he said.

Under a parliamentary decree the police are supposed to be responsible for internal security, with the military supporting them only when needed. Since Mr Wahid's return last week from one of his many controversial overseas trips, observers have been closely watching the security forces, which have until now promised to stay neutral in the crisis.

But as the Government has tried to negotiate a peace agreement with separatists in Aceh, on the northern tip of Sumatra, military commanders have declared war on the Free Aceh Movement.

The oil and gas giant ExxonMobil has halted production at its liquefied natural gas plants in Aceh after a series of attacks, kidnappings and threats against staff and facilities. "The situation is beyond our control," a spokeswoman for the company said.