We present intermediate resolution, large wavelength coverage spectra for the compact radio source PKS 1345+12 (4C 12.50, z = 0.122) that were taken with the aim of investigating the impact of the nuclear activity on the circumnuclear interstellar medium (ISM). Our spectra show extended line emission up to ∼20 kpc from the nucleus, consistent with the asymmetric halo of diffuse emission observed in optical and infrared images. At the position of the nucleus we observe complex emission line profiles and Gaussian fits to the [O III] emission lines require three components (narrow, intermediate and broad), the broadest of which has width ∼2000 km s -1 (FWHM) and is blueshifted by ∼2000 km s-1 with respect to the halo of the galaxy and H I absorption. We interpret this latter component as material in outflow. We also find evidence for large reddening [0.92 <E(B - V) <2.00] and high densities (ne > 4200 cm-3) for the most kinematically disturbed component. The corresponding total mass of line-emitting gas in the kinematically disturbed components is Mgas <106 M⊙. Not all emission line profiles can be reproduced by the same model: [OI]λλ6300, 6363 and [Sn]λλ6716, 6731 require separate, unique models. We argue that PKS 1345+12 is a young radio source with nuclear regions that are enshrouded in a dense cocoon of gas and dust. The radio jets are expanding through this cocoon, sweeping material out of the nuclear regions. Emission originates from three kinematically distinct regions, though gradients (e.g. in density, ionization potential, velocity) must exist across the regions responsible for the emission of the intermediate and broad components.