Malaysia Halts New Non-AI Data Centres Over Resource Concerns

Malaysia has stopped approving new data centres that are not related to artificial intelligence due to concerns over electricity and water consumption, Prime Minister Anwar Ibrahim recently announced. The move reflects the country’s growing focus on supporting AI-driven infrastructure, which is increasingly central to its technology strategy.

The Southeast Asian nation has been rapidly developing into a regional hub for digital infrastructure. However, the surge in data centre construction has significantly increased demand for power and water—both critical for operating and cooling these facilities.

Speaking during a parliamentary question session, Anwar said the government had already restricted the entry of non-AI data centres for nearly two years. According to him, applications for new facilities that are not related to AI have been halted, while projects that deliver advanced technological benefits, particularly in AI, may still receive approval.

Anwar, who also serves as finance minister, emphasised that Malaysia currently has enough capacity to meet its existing energy demands. Nevertheless, he acknowledged that the country may need to explore additional sources of electricity in the future.

One potential solution is drawing power from the ASEAN regional electricity network known as the ASEAN Power Grid, an initiative designed to connect power systems across the bloc’s member states. Another possibility is increasing supply from Sarawak on the island of Borneo, which has abundant hydroelectric and solar energy resources.

Malaysia’s data centre industry expanded rapidly after neighbouring Singapore temporarily paused new data centre developments between 2019 and 2022 due to similar resource constraints. During that period, many international technology companies shifted their investments to Malaysia.

Today, Malaysia accounts for more than half of the data centre capacity currently under construction across five Southeast Asian markets—Indonesia, Thailand, the Philippines and Vietnam—according to market intelligence firm DC Byte.

Much of this development has been concentrated in the southern state of Johor, which borders Singapore. Authorities there have introduced stricter requirements on electricity and water usage for new data centre projects to prevent excessive strain on local resources.