Indonesia is setting up a state investment agency that will manage government holdings in some of the country's biggest firms, after parliament on Tuesday approved the vehicle which is intended to operate like Singapore's investment arm Temasek.

Indonesia has amended a law governing the Southeast Asian nation’s powerful state-owned enterprises, laying the legal foundation for a new agency to manage billions of dollars in state assets while seeking investments domestically and potentially overseas.

Indonesia's parliament on Tuesday approved a bill that allows the government to set up an investment agency that can manage stakes in some of the biggest state companies and is intended to operate like Singapore's investment arm Temasek.