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I have an API hosted on Google App Engine. The main application consuming the API is hosted on compute engine vm's. Currently the main application makes REST calls using the public domain of the App Engine. Is it possible to use internal networking for shorter network paths. Additionally the API should not be available from the outside. Currently the App Engine firewall is configured like the following:

default Deny *
1000 Allow [compute engine vm external IP]

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I do not see how with App Engine. As a managed platform, public domain with IP is a feature. Access it from anywhere on the Internet, including any of your GCP VPCs with overlapping address space.

Compute instances can be created without external IP addresses. But then you have to manage your own environment from the operating system and up.

Latency is likely pretty fast, you are still on GCP's network. There is another reason to skip external however, namely cost savings from IPv4 conservation.

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