Former Australian Prime Minister Bob Hawke's new Labor Government abandoned the party's tough stand on the annexation of East Timor under threat of huge retaliation by Indonesia, Cabinet documents from its early months in power reveal.

The 1983 documents, released by the National Archives of Australia, show deep concern that Jakarta would encourage "hostile measures" by other Islamic and non-aligned countries if Canberra tried to reverse the 1976 incorporation of the former Portuguese colony.

Indonesia would also find support among its Southeast Asian neighbours, and launch a range of retaliatory measures hitting Australian trade, transport, defence and investment.

Canberra could expect no help from its powerful allies, including the United States, an analysis of the issue by Foreign Minister Bill Hayden said.

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"In essence, an inflexible application of the [Labor Party's platform] on East Timor would result in a dreadful shambles in a key area of our foreign policy, alienating major regional neighbours and causing damage that would take many years, probably decades, to repair," he told the Cabinet. Almost three decades later, Hawke still believes his Government was right to drop the party line, accept East Timor's annexation and launch new moves to boost relations with Indonesia, including a huge aid package and visits by the country's leaders.

In an Archives briefing ahead of the release of the documents he said the importance of improving relations with Indonesia was reflected in his choice of Jakarta for his first overseas visit as prime minister.

Hawke said the position paper on the issue presented to the Cabinet by Foreign Minister Bill Hayden was a "sane, practical analysis".

"The annexation had taken place seven years before and we couldn't undo history," he said.

East Timor remained a festering wound in the relationship when Hawke won power.

Many Australians were still furious at the invasion and incorporation of the colony in 1976 and the Liberal Government's recognition of the annexation two years later.

Anger also continued at the murder by Indonesian troops of five journalists in the border town of Balibo - including New Zealander Gary Cunningham - at the start of the invasion.

The most recent party conference had condemned and rejected the annexation.

Hayden's Cabinet analysis said that while uncompromising statements of opposition and criticism had been understandable and proper, Labor was now in Government and needed to "sensibly assess" what could be done.

His assessment included a series of alarming and damaging moves likely to be launched by Jakarta if Australia made a "full-blooded" attempt to push Indonesia out of East Timor.

It said that Indonesia would be supported by its Asean partners, damaging Australia's relations with other Southeast Asian nations.

The annexation was supported by all Indonesian political groups and no action by Australia or any other country would induce Jakarta to relinquish its hold, Hayden said.