On December 1, 1956, Mohammad Hatta had resigned as vice president in protest against Sukarno's growing authoritarianism. Hatta's exit from the political scene did not improve the relations among the central government, Sumatra, and the eastern archipelago, where Hatta was very popular. On February 10, 1958, when Sukarno was out of the country, a group of Sumatran military officers, Masyumi politicians, and others sent an ultimatum to Jakarta demanding Sukarno's return to a figurehead role as president and the formation of a new government under Hatta and Yogyakarta sultan Hamengkubuwona IX. Five days later, the group proclaimed the Revolutionary Government of the Indonesian Republic (PRRI). On February 17, Permesta rebels in Sulawesi made common cause with them. Although the rebellion was not completely suppressed until 1961, decisive action by the military had neutralized it by mid1958 . There were several important consequences: the forced retirement of many officers from Sumatra and the eastern archipelago, making the officer corps proportionately more Javanese (and presumably more loyal to Sukarno); the firm implantation of central authority in the Outer Islands; and the emergence of Nasution, promoted to lieutenant general, as the most powerful military leader. But the army's victory in suppressing regional rebellion caused Sukarno dismay. To offset the military's power, Sukarno's ties with the PKI grew closer.

The PRRI revolt also soured Sukarno's relations with the United States. He accused Washington of supplying the rebels with arms and angrily rejected a United States proposal that marines be landed in the Sumatra oil-producing region to protect American lives and property. The United States was providing clandestine aid to the rebels and Allen Pope, an American B-25 pilot, was shot down over Ambon on May 18, 1958, creating an international incident. Deteriorating relations prompted Sukarno to develop closer relations with the Soviet Union and, especially, the People's Republic of China.