The embassy said in an email on Thursday that the threat was very high of possible kidnappings, shootings or suicide bombings.
"The embassy reminds Americans that in recent years terrorist attacks have occurred in Indonesia during the Christmas and New Year's holiday season," the message said.
It called on citizens to remain vigilant and to vary the routes and times of their daily activities. "The possibility of terrorist attacks appears even higher this year," it said.
Maps and explosives obtained in a police raid on a terrorist's hideout last month indicated that Jemaah Islamiyah, an al-Qaida-linked group, was in the advanced stages of planning attacks, the message said.
The world's most populous Muslim nation has been hit by five suicide bombings targeting Western interests since 2002, together killing more than 242 people.
Near-simultaneous church bombings on Christmas Eve five years killed 19 people.
General Endriartono Sutarto, head of the Indonesian military, said on Thursday that thousands of troops would join police in providing security over the two-week holiday.
Additional guards and patrols also were being deployed to protect high-ranking officials, diplomats and foreigners from potential kidnappings, said Anton Bachrul Alam, the police deputy spokesman.
"The possibility of terrorist attacks appears even higher this year"
The US embassy in Indonesia
Although Azhari bin Husin, Jemaah Islamiyah's bomb-making expert, was killed in a police raid on his hideout last month, authorities have repeatedly said that the terror group was still capable of carrying out attacks.
Dozens of bombs and maps were found, and a videotape showed a hooded man threatening attacks on American, Australian, Italian and British citizens for their support of the war in Iraq.
Change of tactics
The US embassy said terrorists appear to be changing their tactics.
"They are likely now planning to attack Westerners riding in cars or walking on streets, sidewalks or pedestrian overpasses in Jakarta," it said.
The Australian government issued its own Christmas holiday warning on Wednesday, advising its citizens against traveling to Indonesia, especially to Bali.
A similar warning also was issued on Thursday by the Danish Foreign Ministry on its website, which urged "great caution" when in public places where lots of Westerners gather.