Archipelagic Indonesia was the nation worst hit by the earthquake-triggered tsunami, with some 168,000 lives claimed by the catastrophic walls of water that lashed Aceh province at the northern tip of Sumatra island.

About 1,000 residents, school children and officials attended the main open-air prayer ceremony at a village outside Calang town in Aceh, which was among the areas most devastated in the 2004 disaster, an AFP correspondent said.

"The third year anniversary is being held to remind us that the disaster was a test for human beings from God," chief of Aceh Jaya district, Azhar Abdurrahman, told reporters ahead of the ceremony's start.

Dust filled the air amid the activity as the roads in Calang have not yet been asphalted.

A photo exhibition chronicling the reconstruction in the hard-hit district was also being held to mark the day, Abdurrahman added.

Smaller prayer ceremonies were held across the province, with some beginning on Tuesday evening, the correspondent said.

Meanwhile in Banten province, a coastal area on Indonesia's main island of Java, a major drill simulating a tsunami strike following an 8.0-magnitude quake was held involving around 9,000 residents, local television reported.

The simulation also included a chemical leak occurring as a result of the disaster in the industrial area.

"A tsunami drill in Banten is important as we have industrial complexes and there are chemical factories here. A tsunami could bring big disaster for people here," said a local official, who gave his name as Marti.

Hundreds of white-capped or headscarved students, along with residents clutching their children, rushed along the streets to higher ground as sirens wailed, TV footage showed.

Residents acting as victims lay strewn among debris, while residents snapped shots on their mobile phones and emergency vehicles screeched along near-deserted streets to ferry the injured to hospitals.