In his first trip to the region since taking the helm at the Pentagon in July, the former CIA director begins his tour in Indonesia before heading to Japan on Monday and South Korea on Wednesday.
Panetta's trip coincides with sensitive direct talks between the United States and North Korea in Geneva on Monday to try to lay the ground for reviving long-stalled nuclear disarmament negotiations.
In his meetings with Indonesian Defence Minister Purnomo Yusgiantoro on the resort island of Bali, Panetta will discuss regional issues and Washington's growing "military relationship" with Jakarta, said the defence official, speaking on condition of anonymity.
Relations with the Indonesian army had nearly screeched to a halt and remained frozen for 12 years over abuses during former dictator Suharto's 32-year rule.
Indonesia's Kopassus commando unit is accused of deadly abuses in East Timor, Aceh and Papua during Suharto's rule, which ended in 1998, paving the road to democracy.
The defence official said that gradual and limited cooperation with the elite corps, begun in July 2010 by Panetta's predecessor Robert Gates, would continue because Jakarta had shown a commitment to transforming its armed forces.
"We've seen incredible commitment of the Indonesian military and (defence) ministry to transforming the Indonesian armed forces," the official said.
"As a result of that transformation, we've been able to do more with them, both in terms of personnel exchanges, experts exchanges, exercises and even some defence trade and cooperation in sales and security relations," he added.
He said cooperation that was initially focused on the highest echelons of the army now extended to the operational level, including training in human rights.
The human rights issue "is still something that we closely monitor and ensure that no training is going toward anyone who can credibly be accused of human rights abuses," the official said.
During his stay in Bali, Panetta will also meet Indonesian President Susilo Bambang Yudhoyono and defence ministers from the Association of Southeast Asian Nations (ASEAN) on the sidelines of the bloc's meeting on the island.
"There's a clear message that I'm going to bring to the region, and the message is this: that we will remain a strong Pacific force in the 21st century, and we will maintain a strong presence in the Pacific in the 21st century and be a strong force peace and prosperity in that region," Panetta told reporters travelling with him.
Disputes between ASEAN members and China over the resource-rich South China Sea are likely to feature high on the agenda, as Washington has called for a regional code of conduct and insisted on "freedom of navigation" through the crucial global shipping route despite Beijing's territorial claims.
China says it has sovereignty over essentially all of the South China Sea, where its professed ownership of the Spratly archipelago overlaps with claims by Vietnam, the Philippines, Taiwan, Brunei and Malaysia.
Panetta's trip also comes as the United States and North Korea are to hold direct talks in Geneva.
Before any broader discussions, the United States and South Korea are insisting the North take concrete steps to demonstrate it is sincere about resuming full six-party nuclear talks which also include Japan, Russia and China.
In meetings in Tokyo and Seoul, Panetta "will have an opportunity to discuss with his counterparts where we are in the diplomatic process," the senior defence official said.
The defence chiefs will examine steps to bolster diplomacy, but also ensure that they are prepared, should North Korea "choose to undertake a provocation," said the official.