The two men were arrested in central Jakarta on a motorbike just before midnight yesterday after authorities were tipped to their whereabouts, said National Police spokesman Brigadier General Boy Rafli Amar.
Their interrogation led to a rented house where explosive materials were found. A woman and her baby were also taken by police from the house.
He said the men, Zainal Abidin, 38, and Julisman, 28, who uses one name, were part of a cell allegedly involved in recent attacks against Indonesian police.
Dozens of police have been deployed to secure the Myanmar Embassy in Jakarta and its ambassador's house. Truckloads of officers were also placed at nearby buildings and hotels.
Amar said the suspects told authorities they wanted to retaliate against Myanmar for recent attacks on Rohingya Muslims there.
Sectarian violence in the Buddhist-majority country has killed scores, and thousands of Muslims have been driven from their homes.
Indonesia has been battling terrorists since the 2002 bombings on the resort island of Bali that killed 202 people, mostly foreign tourists.
Terrorist attacks aimed at foreigners in Indonesia have been largely replaced in recent years by smaller, less deadly strikes targeting the government, mainly police and anti-terrorism forces.
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