US Secretary of State Hillary Clinton announced $600 million in aid for Indonesia, most of it for "green prosperity" in the world's third-biggest greenhouse gas emitter.

The money will be funnelled through the Millennium Challenge Corporation (MCC), a US government aid agency, which said that while Indonesia is rich in natural resources, many of its rural people do not benefit.

Clinton made the announcement on the Indonesian island of Bali on Saturday, where she is attending the East Asia Summit with US President Barack Obama.

"One in seven villages in Indonesia does not have access to reliable and affordable electricity and many more rely on expensive and dirty diesel generation," the MCC said in a statement.

"Illegal logging, conversion of land for agriculture, water pollution, and other unsustainable land use practices adversely affect the natural assets that people rely on for their livelihoods and well-being."

Indonesia is the world's 18th-largest economy but the third-biggest producer of greenhouses gases, with an estimated 85 percent of emissions coming from deforestation and other destructive land uses.

More than $300 million of the US funds will go towards renewable energy and natural resource projects to raise incomes and reduce emissions, the MCC said.

But Indonesia is regularly rated by watchdogs as one of the world's most corrupt countries and previous attempts to protect forests have run into problems.

A moratorium on logging promised by Jakarta in connection with a $1 billion programme funded by Norway was delayed for five months.

When it was finally signed by President Susilo Bambang Yudhoyono in May this year environmentalists condemned the ban on logging in primary forests and peatlands as containing "gaping loopholes".

Climate Advisers, a Washington-based environmental consultancy, praised the US deal as "a cause for hope" and a "step forward in modernising US foreign aid programmes".

But in a paper for the Brookings Institution think-tank it said: "For a long time Indonesia's forest economy has been notoriously inefficient and corrupt, with profiteering and resource exploitation often trampling the rights of the rural poor.

"Mismanagement and corruption are deeply embedded in Indonesia's land-use sectors, and entrenched interests will fight against efforts to increase transparency and rationalise natural resource decisions."

It warned that Indonesia would need to "sustain the political will to overcome these challenges at all levels of government" for the agreement to work.