The company, which already has factories in China and Vietnam, declined to disclose the potential size of its investment. Earlier this year, Taiwan's Foxconn Technology Group, a major supplier to Apple Inc, said it was considering setting up a $1 billion manufacturing facility in Indonesia.
"We have been discussing with the Indonesian government of our plan to produce mobile phones for the domestic market, so that we can meet local consumers' need more effectively," Samsung said in an emailed statement.
Samsung plans to gradually build up the production capacity at the factory in West Java to 900,000 units per month, Budi Darmadi, director general of high-tech industry at Indonesia's industry ministry, told Reuters.
The South Korean company is expected to start with a monthly capacity of 100,000 units this year, Darmadi added.
It is unclear if Samsung is going to produce cellular phones or smartphones, or both, at the factory.
A youthful population, low smartphone penetration rates and higher disposable incomes make Indonesia an attractive market for smartphone manufacturers like Samsung, which has seen sales growth of its flagship Galaxy models weaken in more established markets.
People aged under-30 make up over half of Indonesia's 240 million population and just 20 percent use smartphones. Estimates put smartphone usage at 50 percent before the end of the decade.
Samsung's investment comes a few months after Indonesians elected former Jakarta governor Joko Widodo, who is seen by the markets as business-friendly, as president of Southeast Asia's largest economy. Widodo's administration is due to take office in October.
Foxconn, listed as Hon Hai Precision Industry Co Ltd in Taiwan, had said it was waiting for the new government to take office before deciding whether it would go ahead with its manufacturing plant.
The Indonesian government is considering a 20 percent tax for smartphones retailing at 5 million rupiah ($428.38 dollar) and above in an effort to dampen the influx of imported products.
© Thomson Reuters 2014