The ruling was issued after the government confirmed seven Indonesian sailors were kidnapped at gunpoint earlier this week, and were being held hostage by an unknown group.
It's the third time this year Indonesian sailors have been abducted in the Sulu sea, a vital waterway that's seen a spike in seaborne crime like armed robberies and kidnappings.
In response to the latest incident, the transport ministry issued a notice informing all harbour masters they were "strictly prohibited from issuing permits to all Indonesian-flagged vessels bound for the Philippines, without exception".
To prevent any commercial vessels from breaching the ban, Indonesia will also ramp up marine patrols in its waters bordering the southern Philippines, Budiono added.
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It's not yet clear how significantly trade will be affected by the ban, but it could severely disrupt the flow of goods from Southeast Asia's largest economy -- including natural resources like coal -- to the Philippines.
The Sulu and Celebes seas form a key waterway between Indonesia, the Philippines and Malaysia, and are used for the passage of 55 million metric tonnes of goods and over 18 million people per year.
The Indonesian sailors abducted this week were towing a coal barge through the Sulu sea when their tugboat was attacked by gunmen.
"The government will do everything possible to free these hostages," foreign minister Retno Marsudi told reporters.
Sulu, a southern archipelago, is a known hideout of Abu Sayyaf Islamic militants who have earned millions of dollars from kidnappings in recent years.
A spokesman for the foreign ministry said he could not confirm whether a ransom demand had been made, or if Abu Sayyaf was responsible for the abductions.