  (Abridged) We present new, intermediate resolution spectra (~4A) of the
compact radio source PKS 1345+12. Our spectra clearly show extended line
emission (~20kpc) consistent with the asymmetric halo of diffuse emission
observed in optical and infra-red images. In the nucleus we observe complex
emission line profiles requiring 3 Gaussian components (narrow, intermediate
and broad). The broadest component (FWHM ~2000 km/s) is blue shifted by ~2000
km/s with respect to the galaxy halo and HI absorption. We interpret this as
material in outflow. We find evidence for high reddening and measure
E(B-V)>0.92 for the broadest component. From [S II]6716,6731 we estimate
electron densities of n_e<150cm^{-3}, n_{e}>5300 cm^{-3} and n_{e}>4200 cm^{-3}
for the regions emitting the narrow, intermediate and broad components
respectively. We calculate a total mass of line emitting gas of M_{gas}<10^6
solar masses. Not all emission line profiles can be reproduced by the same
model: [O I]6300,6363 and [S II] require separate, unique models. We argue that
PKS 1345+12 is a young radio source whose nuclear regions are enshrouded in a
dense cocoon of gas and dust. The radio jets are expanding, sweeping material
out of the nuclear regions. Emission originates from three kinematically
distinct regions though gradients (e.g. density, ionisation potential,
acceleration) must exist across the regions responsible for the emission of the
intermediate and broad components.
