FIFA on Wednesday stripped Indonesia of the right to stage this year's Under-20 soccer World Cup, over what an Indonesian official said was a failure to honour its commitments to the tournament.

The decision to stop Indonesia holding the May 20-June 11 event was taken after the country's football federation (PSSI) said it had cancelled the draw because the governor of the largely Hindu island of Bali refused to host Israel's team.

"FIFA has decided, due to the current circumstances, to remove Indonesia as the host of the FIFA U-20 World Cup 2023," a FIFA statement said.

"A new host will be announced as soon as possible, with the dates of the tournament currently remaining unchanged. Potential sanctions against the PSSI may also be decided at a later stage."

World soccer's ruling body added that the decision had been taken following a meeting between its President Gianni Infantino and PSSI Chairman Erick Thohir.

"Indonesia is a FIFA member, so for any international soccer matters, we have to abide by the rules," Thohir said in a statement on PSSI's website.

"I ask all football lovers to keep their heads held high over this tough decision by FIFA. It's time we proved to FIFA to work harder to transform soccer, towards clean and high-achieving soccer."

The loss of hosting rights will be a big setback in Indonesia, where football has a massive following, despite the lack of international success since qualifying for the 1938 World Cup as the Dutch East Indies.

When asked why FIFA had decided to remove Indonesia as hosts, Zainudin Amali, deputy PSSI chief and former sports minister told KompasTV; "FIFA decided Indonesia didn't follow through with its earlier commitments while bidding."

Zainudin added that he hopes to avoid sanctions but fears another FIFA ban.

"That we were removed from hosting rights is already tough for us," he said.

Protesters marched in the capital Jakarta this month waving Indonesian and Palestinian flags and demanding that Israel was not allowed to participate.

Indonesia's population is predominantly Muslim. Most Indonesian Muslims practise a moderate version of Islam, but there has been a rise in religious conservatism in recent years that has crept into politics.

The PSSI said this week that losing hosting rights would harm Indonesian football teams' chances of taking part in other FIFA tournaments, while the economic losses would amount to "trillions of rupiah".

FIFA said on Wednesday that it was committed to aiding the PSSI following a deadly stampede last year that led to the deaths of 135 spectators at a stadium in East Java.

"Members of the FIFA team will continue to be present in Indonesia in the coming months and will provide the required assistance to the PSSI, under the leadership of President Thohir," FIFA said in the statement.

"A new meeting between the FIFA President and the PSSI President for further discussions will be scheduled shortly."

As hosts, Indonesia automatically qualified for the Under-20 World Cup, but they have not played in the tournament since 1979.