The move followed Malaysia's recent lifting of a six-month ban on capital flows, to be replaced next week by a tax of up to 30 per cent on funds moved out of the country.
The flight of newly released money sent Malaysian shares tumbling 5.85 per cent in heavy trading. The fall dragged other stockmarkets in Asia lower too, with falls in Seoul, Bangkok, Jakarta and Hong Kong.
The switch from overt capital controls to a tax on movements of funds out of the country of up to 30 per cent - less on longer-term investments - was intended to encourage foreign investment, but backfired as those trapped by earlier restrictions made for the exit.
Although the recurrent financial crises of the past two years had persuaded a number of prominent economists that capital controls could be a useful policy in emerging markets, Malaysia was the only affected country to try them.
Its experience has now confirmed the view that any restrictions simply discourage foreign investment.