Move is likely to strain ties with China, which have already been tested since Mahathir won a stunning election in May.
The International Paralympic Committee (IPC) has stripped Malaysia of the right to host the 2019 World Para Swimming Championships, after the country banned Israeli athletes from participating.
The championships, a qualifier for the 2020 Tokyo Paralympics, had been scheduled for Kuching between July 29 and August 4.
The IPC said on Sunday a new venue would be sought for the same dates, although there might be some flexibility in light of the circumstances.
“All World Championships must be open to all eligible athletes and nations to compete safely and free from discrimination,” said IPC president Andrew Parsons in a statement after a meeting of the IPC governing board in London.
“When a host country excludes athletes from a particular nation, for political reasons, then we have absolutely no alternative but to look for a new championships host.”
Malaysia, a majority-Muslim country that does not have diplomatic relations with Israel, announced this month that it would bar Israelis from any event held in the Southeast Asian nation.
That followed a statement by Prime Minister Mahathir Mohamad that Israelis are not welcome in Malaysia.
“We feel that they are doing a lot of wrong things, but getting away with them because nobody dares to say anything against them,” he said during his visit to London.
Israel had condemned the ban as “shameful” and said the decision was inspired by Mahathir’s “rabid anti-Semitism”.
Mahathir, 93, has for decades been accused of anti-Semitism for his attacks against Jews.
In a BBC interview last October, he described Jews as “hook-nosed” and blamed them for the troubles in the Middle East.
Mahathir has defended his statement saying it was his right to say anything about Israel’s action against the Palestinian people.
Some 600 swimmers from 60 countries were expected to compete in the championships in the eastern state of Sarawak, with more than 160 titles to be won.
The IPC said all potential replacement hosts were asked to express an interest by February 11.
“The Paralympic Movement has, and always will be, motivated by a desire to drive inclusion, not exclusion,” said Parsons in the statement.
“Regardless of the countries involved in this matter, the IPC would take the same decision again if it was to face a similar situation involving different countries.”
He said that when Malaysia was awarded the championships in 2017, the IPC had been given assurances that all eligible athletes and countries would be allowed to participate with their safety assured.
“Since then, there has been a change of political leadership and the new Malaysian government has different ideas,” said Parsons.
“Politics and sport are never a good mix and we are disappointed that Israeli athletes would not have been allowed to compete in Malaysia.”