Indonesian police have reported an al Qaeda-affiliated group plotted to kill the country's leaders and declare an the country an Islamic state.

Al Qaeda planned to kill Aceh's President Susilo Bambang Yudhoyono and other top leaders during a planned attack during an Independence Day celebration on August 17.

They also planned to take over hotels and kill foreigners, especially Americans, just like Islamic militants did in the attack in Mumbai, India in 2008.

"They were confident that all state officials and dignitaries would be there," national police chief Gen. Bambang Hendarso Danuri said. "Killing all the state officials would have accelerated the transition from a democracy to a state controlled by Islamic Shariah law."

"Their plan was also to launch attacks in Jakarta against foreigners - especially Americans - and attack and control hotels within certain communities, imitating what happened in Mumbai," he added.

Police uncovered the plot after interrogating dozens of terror suspects arrested since February.