Malaysian Prime Minister Mahathir bin Mohamad has warned Prime Minister Scott Morrison the Israeli embassy saga risks “adding to the cause for terrorism”.

In the latest diplomatic humiliation at the ASEAN summit, it was revealed the Malaysian leader, 93, had raised the issue with Australia. 

“I pointed out that in dealing with terrorism, one has to know the causes,” the Malaysian Prime Minister said.

“Adding to the cause for terrorism is not going to be helpful. I pointed that out. Australia has not made any decision. They’re looking into it.”

Malaysian Prime Minister Mahathir bin Mohamad has warned Scott Morrison he may be “Adding to the cause for terrorism”.

On Wednesday, Indonesian president Joko Widodo also raised the embassy issue with Mr Morrison during talks in Singapore. 

Dr Mahathir was famously dubbed “recalcitrant” by former Prime Minister Paul Keating for failing to attend an Asia Pacific Economic Co-operation summit.

It added to the PM’s woes on a day in which he accused Bill Shorten of taking his foreign policy orders from overseas after the Labor leader warned he was making Australia look “stupid” over the Israeli embassy saga.

The Prime Minister has left the door open to dumping the contentious proposal to relocate Australia’s embassy from Tel Aviv to Jerusalem after it sparked anger in Indonesia.

However, Mr Morrison is at pains to stress that any final decision is unrelated to the free trade deal he is poised to sign with the Muslim nation. 

It follows revelations Liberal frontbencher Steve Ciobo told Indonesian officials on Thursday that there was a “less than 5 per cent” chance of Australia pressing ahead with a divisive new policy on Israel.

The idea has also split cabinet, with some senior ministers still strongly supporting it and urging Mr Morrison not to allow foreign countries, including Indonesia, to dictate Australia’s policy. 

“All I have said is that we will consider the matter. This could be consistent with the two-state solution,” Mr Morrison said at the ASEAN summit in Singapore on Thursday.

“Australia will determine our foreign policy issues. We will consider that on our timeframe.

“That matter will not be considered in the context of the issues in relation to the trade agreement.”

The Prime Minister said Australia had to be sovereign in determining its foreign policy.

“The position we ultimately arrive at is one consistent with Australian interests and not related to other matters … We can’t have it determined or our agenda set by any other nation. That’s just a matter of treating yourself with respect,” he said.

“I’m disappointed the Leader of the Opposition would be so quick to take cues on Australia’s foreign policy from those outside Australia.”

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The issue has dogged Mr Morrison since the embassy idea was first floated during the Wentworth by-election – a move widely interpreted as an attempt to appeal to Jewish voters in the electorate. 

Earlier, Mr Shorten accused Mr Morrison of making Australia “look stupid” throughout the embassy saga.

“Mr Morrison made a mistake. Frankly he made himself look stupid and made our country look stupid. If he has decided not to move the embassy, for goodness sakes, just tell us so we can all get on with everything else,” he said. 

I don’t see why this nation has to wait until Christmas so Mr Morrison can climb off his high horse and admit he made himself and Australia look stupid.”

Indonesia’s trade minister Enggartiasto Lukita has bluntly confirmed the debate has delayed the signing of a free-trade agreement with Australia.

Fairfax Media reported on Thursday that Mr Ciobo tried to reassure Mr Lukita.

“I cannot say 100 per cent we will move but, I guess, the possibility is less than 5 per cent,” Mr Ciobo reportedly said following a meeting between Mr Morrison and Indonesian President Widodo on the sidelines of the East Asia Summit in Singapore on Wednesday.

Asked by The New Daily on Thursday if he made the comments, Mr Ciobo did not deny doing so. An announcement would be made in due course, he said. 

“As the PM has made clear, no decision has been taken. It is being reviewed and a decision will be announced in the future,” he said. 

Mr Ciobo’s remarks about the embassy’s possible shift from Tel Aviv to Jerusalem have also angered some within the Morrison government.

The Queensland MP was a key figure in the recent leadership turmoil and is a supporter of Home Affairs Minister Peter Dutton. 

Finance Minister Matthias Cormann, pressed on the issue in the Senate on Thursday, said he was not about to comment on unsourced claims in the media. 

“Don’t always believe everything you read in an newspaper,” he said.

Former prime minister Malcolm Turnbull is among those to disagree with the controversial idea. On his recent visit to Indonesia, he publicly warned Mr Morrison against the move. 

“There is no question, were that move to occur, it would be met with a very negative reaction in Indonesia,” he said. “This is, after all, the largest Muslim-majority country in the world.”

Mr Turnbull’s views are supported by former foreign minister Julie Bishop, who earlier resisted the move to follow US President Donald Trump’s lead and move the embassy.