The C-130 aircraft was flying from west Malaysia yesterday towards the eastern Malaysian state of Sabah, a senior official told AFP on condition of anonymity.
"That (flying over the Natuna Islands) is a regular route," the official said, adding that the C-130 continued its journey to Sabah despite the interception.
Defence Minister Hishammuddin Hussein confirmed the incident.
"Yes... The aircraft was intercepted by two Indonesian jets," he was quoted as saying by the Star online news portal.
Unlike some of its Southeast Asian neighbours, Indonesia has no maritime disputes with China over reefs or islets in the South China Sea.
But Beijing's claims overlap Indonesia's exclusive economic zone -- waters where a state has the right to exploit resources -- around the Natunas.
Hishammuddin played down the incident, saying Malaysia and Indonesia enjoy close relations.
"I'm not worried as this is normal and it happens everywhere in the world. If there were any incidents between us, we can deal with each other diplomatically. We will not let any incident ruin our ties," he added.
In 2002 Indonesia lost a case against Malaysia at the International Court of Justice over Sipadan and Ligitan, two small islands in the Celebes Sea off Sabah state.
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