President Susilo Bambang Yudhoyono signed the decree on Monday to continue the 2011 moratorium, which barred new logging and palm oil plantation permits under a $1 billion deal with Norway, said his environment adviser, Pungki Agus Purnomo.
He said the ban will preserve 64 million hectares (158 million acres) until 2015. It will not affect areas where concessions were granted before the moratorium.
Environmentalists hailed the extension while also urging leaders to better enforce the law. They say some protected areas continue to be exploited because of corruption and illegal fires and logging.
Indonesia's largest environmental group, Walhi, said the government must also work to stop logging permits from being issued at the local level.
"It is just like a presidential instruction to his subordinates ... it has no power to sanction against violators," said Walhi environmentalist Berry Nahdian Furqan, who added that the ban should be made permanent.
Indonesia is one of the world's biggest greenhouse gas emitters, largely because many of the palm oil plantations on the islands of Borneo and Sumatra are planted on carbon-rich peatland that must be drained first, releasing vast amounts of carbon dioxide into the atmosphere each year.
Rapid deforestation has occurred in recent years in Indonesia as it feeds the world's hunger for palm oil, pulp and paper. The destruction has caused damage ranging from deadly flash floods and landslides to a loss of habitat for endangered species such as orangutans, elephants, tigers and rhinos.
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