Prime Minister Abd Allah Ahmad Badawi told a news conference on Friday: "We will not allow any kind of web page or any kind of company operating on behalf of any terrorist organisation."
A Malaysian internet company which hosted the website showing the grisly video of the decapitation of American Nick Berg has already closed it down, a company spokesman said.
The company, Acme Commerce, unwittingly hosted the site and closed it as soon as it became aware of the content, business manager Alfred Lim said.
"We have cut off all websites that are linked to terrorism," Lim told the Malaysiakini online newspaper, which reported the company hosted at least six other sites linked to alleged "terrorist" groups.
The leader of the opposition in Malaysia's parliament, Lim Kit Siang of the Democratic Action Party, has called for a government probe into "the serious allegation that Malaysia is hosting a master network of international terrorist websites".
The site that showed the video of five hooded men beheading Berg was named as Muntada al-Ansar, which Alfred Lim said was among 5000 sites from 45 countries the company had managed since setting up business in 1998.
"There are so many terrorist organisations in Europe and the US, but that does not make the US or Europe a terrorist country"
Syed Hamid Albar,
Malaysian foreign minister
Foreign Minister Syed Hamid Albar said the government would invstigate the issue, but added: "There are so many terrorist organisations in Europe and the US, but that does not make the US or Europe a terrorist country."
Malaysia is a mainly-Muslim country which has been sharply critical of the US-led invasion of Iraq, but has at the same time detained more than 80 alleged Islamic "militants".
It is seen as one of the most highly-developed countries in the Islamic world, and its sophisticated infrastructure has in the past been blamed for attracting unwelcome visits by "terrorism" planners.