Indonesia held scaled-back Independence Day celebrations in Nusantara on Saturday as the government rushed to complete the future capital, which is slated to replace sinking and polluted Jakarta.

The $32-billion megaproject on Borneo island was expected to officially become Indonesia's political capital on Saturday, but construction delays and funding problems forced President Joko Widodo to defer signing a presidential decree sealing the move.

Widodo, more popularly known as Jokowi, attended the ceremony in Nusantara with cabinet ministers and military brass as he sought to reassure potential investors of the project's viability before he leaves office after a decade in power.

He was the first president to attend a state ceremony in the unfinished capital.

But Jokowi did not address attendees at the celebration, which included a prayer and military parade, a day after he gave his final state of union address to parliament touting his economic record but not mentioning the new capital.

His successor Prabowo Subianto, who will take office in October, also attended the ceremony in Nusantara.

Fewer than 2,000 others attended, however, as a lack of accommodation and ongoing construction forced the guest list to be slashed back from 8,000.

The presidential decree switching capitals could be delayed until Prabowo enters office.

Indonesia declared independence in 1945, after more than three centuries of Dutch rule and at the end of Japanese occupation during the Second World War of what was then the Dutch East Indies.

The Indonesian government says it wants to build Nusantara to spread development away from megalopolis Jakarta, which has a population of around 12 million people.

But investment, particularly from foreign backers, has not been forthcoming, with 100 trillion rupiah ($6.13 billion) sought by the end of the year but only 56.2 trillion materialising so far.

Environmentalists have also warned against building a metropolis in one of the world's biggest stretches of rainforest, home to orangutans, long-nosed monkeys and clouded leopards.