The World Health Organisation (WHO) had criticised the country's initial refusal to order a slaughter, saying that poultry culls were the best way of halting the rapid spread of the illness.
Indonesia's welfare minister, Jusuf Kalla, said that the president, Megawati Sukarnoputri, had promised government assistance to compensate breeders for their losses and replace stocks.
"The government will cull the chickens in infected regions," Mr Kalla told local radio. "We will replace them with a new breed."
Following a similar sequence of events in Thailand, Indonesian authorities issued weeks of denials before announcing on Sunday that bird flu was spreading throughout much of the country. The virus has been found in Bali, its leading tourist destination.
Ten Asian countries and territories are battling the poultry disease, and tens of millions of ducks and chickens have been culled.
The virus has spread to humans in Thailand and Vietnam, where at least 10 people have died, but Indonesia maintains that it has no human cases.
Parts of Asia still free of bird flu were this week responding quickly to even the slightest sign of trouble.
In Hong Kong, a 75-year-old woman who returned from Vietnam with flu-like symptoms was isolated until tests to determine whether she had the disease proved to be negative.
In Singapore, a campaign to intensify the culling of crows - which are considered to be potential carriers because they could pick up the virus from dead birds - has grown.
The culling of crows is an ongoing policy regardless of bird flu, and numbers have been reduced from 120,000 to 30,000 over the past three years.
Both Singapore and Hong Kong were hit hard by Sars last year, and both are on high alert.
The WHO insists that the mass slaughter of infected poultry holds the key to controlling the outbreak, but health ministers from 13 infected or threatened countries yesterday failed to reach a consensus on the issue at an emergency meeting in Bangkok.
"All countries will adopt the best way to end the spread of this virus as soon as possible. Each country will have to find its own way to end this problem," Thailand's foreign minister, Surakiart Sathirathai, said.
Most human cases have been traced to direct contact with sick birds, and many of the victims have been young children.
Although there has been no evidence of human-to-human transmission during the outbreak, health officials are concerned that the virus could mix with a human influenza strain, creating a mutant form that could trigger a new flu pandemic.
Officials have also said there are so far no indications that bird flu is spreading to people who eat properly cleaned and cooked poultry products.
However, governments worldwide have slapped import bans on poultry from affected countries.
The WHO said that a human vaccine could be available in about six months, and the Swiss healthcare group, Roche, today announced that its Tamiflu anti-flu drug could help to fight the spread of bird flu to people.
Roche said that pre-clinical trials "provide reassurance" that Tamiflu could be used against the so-called "H5N1" strain associated with outbreak.