We study the local seismicity in East Java around the Arjuno-Welirang volcanic complex that is connected via the Watukosek Fault System, to the spectacular Lusi eruption site. Lusi is a sediment-hosted hydrothermal system which has been erupting since 2006. It is fed by both mantellic and hydrothermal fluids, rising and mixing with the thermogenic gases and other fluids from shallower sedimentary formations. During a period of 24 months, we observe 156 micro-seismic earthquakes with local magnitudes ranging from ML0.5 to ML1.9, within our network. The events predominantly nucleate at depths of 8–13 km below the Arjuno-Welirang volcanic complex. Despite the geological evidence of active tectonic deformation and faulting observed at the surface, practically no seismicity is observed in the sedimentary basin hosting Lusi. Although we cannot entirely rule out artifacts due to an increased detection threshold in the sedimentary basin, the deficit in significant seismicity suggests aseismic deformation beneath Lusi due to the large amount of fluids that may lubricate the fault system. An analysis of focal mechanisms of nine selected events around the Arjuno-Welirang volcanic complex indicates predominantly strike-slip faulting activity in the region SW of Lusi. This type of activity is consistent with observable features such as fault escarpment, river deviation and railroad deformation; suggesting that the Watukosek fault system extends from the volcanic complex towards the NE of Java. Our results point out that the tectonic deformation of the region is characterized by a segmented fault system being part of a broader damage zone, rather than localized along a distinct fault plane.