JAKARTA, Oct 5 (Reuters) - Indonesia rebuffed neighbouring nations' complaints about haze from its forest fires on Thursday, arguing that a tireless drive involving thousands of people and costing many thousands of dollars was under way to put them out.

Forestry Minister Malem Sambat Kaban's defence of efforts to douse hundreds of blazes on Sumatra island and in Kalimantan on Borneo came as Greenpeace urged Jakarta to "break the cycle of fire and haze" threatening the health of millions across the region.

"Thousands of residents have been working with fire brigades to extinguish the fires," Kaban told Reuters.

"We don't know when we can put out the fires but we are working tirelessly and have spent billions of rupiah (hundreds of thousands of dollars) in our efforts.

"As for complaints from neighbouring countries, there's nothing else we can do. We don't cause the fires deliberately."

He said recent satellite images had shown more than 1,600 hotspots on Sumatra and on Borneo.

Environment group Greenpeace meanwhile urged the forestry minister to halt all land-clearing in virgin forests.

It blamed big industrial concerns for being behind many of the fires in Sumatra and Kalimantan, home to endangered animals such as orangutans, tigers and the Asian elephant.

"The Forest Minister must immediately stop all new conversions to minimise the possibility of large and uncontrolled forest fires in Indonesia," Hapsoro, forest campaigner for Greenpeace Southeast Asia, said in a statement.

The fires are a regular occurrence during the dry season, but the situation has worsened in the last decade, with timber and plantation firms often blamed for deliberately starting fires.

The situation in Malaysia appeared slightly improved on Thursday, although pollution levels in the worst-hit state of Sarawak on Borneo remained at "unhealthy" levels.

"At the moment, it's better than yesterday," Sarawak Deputy Chief Minister George Chan told Reuters. "We have undertaken cloud-seeding three days ago."

He said schools and kindergartens remained open.

The minister said there had been a few flight cancellations and diversions on Wednesday, and helicopter flights were still suspended in the state because of poor visibility.

After a plane with over 100 on board skidded off a runway in Borneo on Tuesday, Indonesia urged airports in areas shrouded by thick haze to close if conditions made landing hazardous.

Singapore's Pollutants Standards Index (PSI), which hit its high of the year on Monday, also fell back further on Thursday.

Indonesian Environment Ministry spokesman Hermono Sigit put the number of hotspots on Wednesday at 300, but said most fires were on peatland, where flames are particularly hard to douse.

He said that putting out such fires required driving pipes deep into the ground and piping in water.

Samuel Chatib, head of the local plantation office in South Sumatra, estimated that 120,000 hectares (296,500 acres) of peatland were ablaze in South Sumatra province alone. (Additional reporting by Ahmad Pathoni and Diyan Jari in JAKARTA, Jalil Hamid in KUALA LUMPUR and Sara Webb in SINGAPORE) ((Editing by John Chalmers; ed.davies@reuters.com; Reuters Messaging; ed.davies.reuters.com@reuters.net; tel +6221 384 6364))