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Penang's government has announced that it will dismantle the New Economic Policy, or NEP. It is the first time a Malaysian state has moved to undo the controversial affirmative-action policy.

The NEP was introduced after race riots in 1969 and gives Malays preference for almost everything from jobs and housing to government contracts, educational opportunities and stocks.

Malaysia's Chinese and Indian communities say the policy has created an uneven playing field which disadvantages them.

The Chinese-backed Democratic Action Party (DAP) led by Lim Guan Eng says the NEP also breeds cronyism and corruption.

The recent election result has allowed an opposition coalition comprising the DAP, Keadlilan and PAS to form governments in five of Malaysia's 13 states.

Abdullah Badawi, Malaysia's prime minister, has warned Penang's new government that the move could provoke racial tensions.

This episode of 101 East aired on Thursday, March 20, 2008.