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By Stefanno Sulaiman

JAKARTA, Oct 17 (Reuters) - Foreign direct investment into Indonesia fell nearly 9% from a year ago in the third quarter, the sharpest fall since early 2020 due to geopolitical tensions and the "trade war", the country's investment minister said on Friday.

FDI, excluding investment in the financial and oil and gas sectors, was 212 trillion rupiah ($12.78 billion) in the third quarter, 8.9% lower in rupiah terms than a year earlier, ministry data showed.

The rate of decline was the sharpest since the first quarter of 2020. It followed a 7% annual drop in FDI in the second quarter.

However, Southeast Asia's largest economy saw a total of 491.4 trillion rupiah worth of overall direct investment in the third quarter, up 13.9% on a yearly basis, on a 40% surge in domestic direct investment.

Almost 700,000 jobs were created from the investments, the ministry said.

"As we know, global challenges persisted in the third quarter, tensions from the trade war, tensions from wars," Investment Minister Rosan Roeslani said.

"But the investment environment has recovered by now because, for example, Gaza has reached peace."

The biggest beneficiaries of FDI in the July-September period were the base metal, mining, transportation, warehouse and telecommunication industries.

Singapore, Hong Kong and China were the biggest sources of FDI in the third quarter.

Domestic businesses' confidence has more than made up for the FDI fall, Rosan said, listing investments such as miner Amman Mineral Internasional's AMMN.JK copper smelter, airline Garuda Indonesia's GIAA.JK purchase of new aircraft and the expansion of Jakarta's mass rapid transit as contributing to the surge in domestic investment during the three-month period.

Rosan said the government was making efforts to smooth the investment approval process, while also seeking investment from non-traditional sources of FDI such as the Middle East, especially for renewable energy.

Next year's focus is to attract investors in forestry and maritime sectors so as to diversify from mining and base metals, the minister said.

($1 = 16,585 rupiah)

(Reporting by Stefanno Sulaiman; Writing by Gayatri Suroyo; Editing by David Stanway and Kate Mayberry)

((gayatri.suroyo@thomsonreuters.com; +6569738278;))