Short video app TikTok said it will stop transactions on its app in Indonesia from Wednesday after Southeast Asia's biggest economy banned direct sales on social media platforms last week to protect millions of small businesses.

The new regulation is yet another setback for TikTok, which has faced intense scrutiny in the United States and other nations in recent months over users' data security and the company's alleged ties to Beijing.

Indonesia is one of the world's biggest markets for TikTok Shop and was the first to pilot the app's e-commerce arm, but the Chinese-owned app said it would comply with the new regulation from Wednesday evening.

"Our priority is to remain compliant with local laws and regulations," TikTok Indonesia said in a statement on Tuesday.

"As such, we will no longer facilitate e-commerce transactions in TikTok Shop Indonesia," it said.

Calls have grown in recent months for a regulation governing social media and e-commerce, with offline sellers seeing their livelihoods threatened by the sale of cheaper products on TikTok Shop and other platforms.

Indonesian Trade Minister Zulkifli Hasan said firms who did not comply with the ban on goods transactions would first be warned and then lose their license to operate in Indonesia.

"E-commerce cannot become social media. It is separated," he told reporters last week.

Hasan said social media companies could advertise products but not facilitate transactions for them on their platforms, saying the decision was taken to protect small- and medium-sized businesses.

While stressing it would respect local laws,  TikTok Indonesia also criticised the ban by saying it would harm millions of Indonesian sellers who used the app.

Indonesia's e-commerce market is dominated by platforms such as Tokopedia, Shopee and Lazada but TikTok Shop gained a significant market share since launching in 2021.

Indonesia, with 125 million users, is TikTok's second-largest global market after the United States, according to company figures.

TikTok's chief executive Shou Zi Chew visited Jakarta in June, pledging to pour billions of dollars into Southeast Asia in the years ahead.