Malaysia has tightened its approach to data centre investments by restricting new projects that are not tied to artificial intelligence, citing growing concerns over the heavy demands these facilities place on electricity and water resources. Prime Minister Anwar Ibrahim announced the policy in the Dewan Rakyat on Tuesday, noting that approvals now prioritise AI-related developments over conventional data centres.
He said the government began limiting the entry of new non-AI data centres about one and a half to two years ago. Authorities now prioritise projects that deliver clear benefits in high technology and AI advancement, while rejecting applications that merely seek to capitalise on Malaysia’s comparatively lower energy tariffs and water costs.
AI Data Centres Get Priority
Anwar explained that AI-driven data centres support complex AI workloads, which require significant computing power and intensive cooling systems. These facilities consume substantial amounts of electricity and water, particularly for server cooling.
Despite that, he maintained that Malaysia’s current electricity and water supply can support existing operations and projects that have already secured approval. The government, he said, has halted new applications for traditional data centres that do not relate to AI, effectively tightening the pipeline to manage long-term resource demand.
He made the remarks in response to a supplementary question from Datuk Che Mohamad Zulkifly Jusoh (Besut-PN), who raised concerns about the rapid expansion of AI infrastructure and its impact on national utilities. The Besut MP asked how the government would prevent large-scale AI data centre investments from overloading the national grid, triggering further electricity tariff hikes, or disrupting supply to households and small and medium-sized enterprises.
Grid Capacity And Long-Term Energy Plans
According to Anwar, projections by the Ministry of Energy Transition and Water Transformation show sufficient capacity to meet current approved demand for the next one to two years. Beyond that timeframe, the government is pursuing longer-term solutions to safeguard energy security.
He pointed to the development of the ASEAN Power Grid, which aims to strengthen regional electricity connectivity. Plans include transmission links connecting Vietnam to Peninsular Malaysia and Singapore, as well as initiatives to channel hydropower from Sarawak to Peninsular Malaysia and Singapore. The prime minister added that these projects will bolster long-term supply resilience and support growing demand from digital infrastructure.
Growing Data Centre Footprint Concerns
Malaysia’s data centre sector has experienced rapid growth as global technology companies expand their cloud and AI infrastructure in Southeast Asia. While this surge promises economic benefits, it also brings fresh scrutiny over the strain these facilities place on national utilities. Industry observers warn that without careful planning, this trajectory could overload local water supply infrastructure and add stress to the national grid, even as the government maintains that current resources are sufficient for existing AI-linked projects.
According to the National Water Services Commission (SPAN), via a recent report published by SinarDaily, data centres in Malaysia are projected to require around 876 million litres of water per day by 2025 to support operations, a volume roughly equivalent to the daily water needs of nearly four million people. Much of this water is used for cooling systems essential to keeping servers at safe operating temperatures.
On the electricity front, although current consumption remains below declared maximum demand, data centre power use has already reached several hundred megawatts. As revealed by MITI deputy minister Liew Chin Tong in Dewan Rakyat last November, the Energy Commission reported that operators were drawing about 603 megawatts of electricity as of mid-2025, representing nearly half of the sector’s declared potential demand.
(Source: Bernama)
