The 28-year-old woman - who worked for a chicken trader - died Tuesday after being hospitalized for four days, said spokesman Joko Suyono, adding authorities suspected she was exposed to infected poultry at her workplace.
"Tests in two local laboratories came back positive" for the H5N1 strain of the disease, he said. However, he could not say whether samples will be sent to a WHO-collaborating laboratory for confirmation.
Officials found Tuesday that several chicken were H5N1 positive at the woman's workplace, the Health Ministry said, without giving details about whether infected poultry might have been sold or widely distributed before the tests.
Another woman died of bird flu on Bali one week ago, causing fears that it would hurt tourism on the island, which has been struggling to recover since terrorist attacks in 2002 and 2005 killed more than 220 people.
At least 194 people - the majority of them in Indonesia - have died worldwide from bird flu since it first infected Asian ducks and chickens in 2003, according to the World Health Organization.
The virus remains hard for people to catch, but experts fear it will mutate into a form that spreads easily among humans, potentially sparking a pandemic.