In a row highlighting foreign miners' concerns over investing in the country, Churchill's move comes after an administration on Indonesian Borneo stripped the firm of its licence in 2010, citing forgery and an overlap of concessions.
The decision to seek arbitration comes weeks after it learned the Indonesian Supreme Court had rejected an appeal.
The World Bank's International Centre for Settlement of Investment Disputes in Washington DC will now decide if the move breached an investment treaty with Britain.
"Our lawyers in London informed me they filed the request on Tuesday," Churchill executive chairman David Quinlivan told AFP.
"We will seek whatever we're due in terms of the treaty."
Churchill and a local partner obtained permits on 35,000 hectares of land on Borneo, expecting to find 100 million tonnes of the coking coal that is in high demand in India and China to drive their huge economies.
They made the finding public in 2008 and Churchill said the reserves could bring in up to $1 billion a year for the next 25 years.
However the permits were revoked by the district head in East Kutai and returned to the former concession holder, the Nusantara Group, which has declined to comment on the case.
Nusantara is owned by one of Indonesia's wealthiest men, Prabowo Subianto, the former head of the notorious Kopassus special forces unit who is accused of human rights abuses during Indonesia's 1975-99 occupation of East Timor.
In March, Forestry Minister Zulkifli Hasan in a letter backed Churchill's claims, saying the decision to revoke the licences was not correct.
Churchill's shares have plummeted over the row, from above 130 pence on the London Stock Exchange in 2010 to 12.75 pence by close on Tuesday.
The case comes after the government introduced a raft of mining regulations seen as protectionist, including a law that strips foreigners of control over local mining assets after 10 years of production, while another imposes a tax on most raw metal exports.