Late on Wednesday S Subramaniam, the Malaysian human resources minister, was quoted in the local media as announcing that Malaysia "can put a stop to hiring" foreign workers if they are not needed.
Foreigners working in the manufacturing and services sectors can continue until their contracts expire or until they are laid off, but fresh recruitment of foreigners will not be approved, the minister said.
"We want to make sure that all locals who have been [laid off] can get a new job," he added.
But those in the plantation and construction sectors – jobs which Malaysians traditionally shun became of low salaries and arduous work - will not be affected, the official said.
Skilled foreign labour needed mostly in the manufacturing of electronic and electrical goods, textiles and furniture may also be exempted.
According to the government more than 10,000 Malaysians have lost their jobs because of the slowdown in the country's export-dependent economy, while another 45,000 are predicted to be out of work by the end of the year.
About 3,000 foreigners suffered from job cuts during the same period.
Eka Suripto, an Indonesian diplomat in Kuala Lumpur, said his country expects one-third of its 300,000 nationals working in Malaysia's manufacturing industry to lose their jobs this year.
Adding to the number of legal foreign workers are an estimated one million undocumented migrants employed mainly at plantations, construction sites and restaurants, most of them from poorer Asian nations such as Indonesia and the Philippines.
Authorities have forecast that the Malaysian economy will expand by 3.5 per cent in 2009, but some economists have warned that growth could fall below 2 per cent.
Malaysia's government has struggled to assure the public that the country will not slip into recession.