Activity in normally bustling Kuching, the capital of Sarawak, slowed as schools, businesses, government offices and airports shut. Malaysia Airlines said all flights to Kuching had been cancelled or diverted.
Hospitals and food stores were allowed to stay open.
The Malaysian Prime Minister Mahathir Mohamed said: "With the API (air quality) level in Sarawak state having reached above 500, and expected to continue, I declare a state of emergency for the state."
A reading over 500 is regarded as extremely dangerous and a senior environment official said: "If you are exposed to air at 200 to 300 on the API for a day, it could be roughly like smoking  cigarettes."
The pollution, which has shrouded Malaysia, Singapore and Brunei for weeks, is caused largely by thousands of forest fires in Indonesia, particularly on Sumatra and the Indonesian part of Borneo.
In Kuching's smog-shrouded streets, hawkers sold masks marked up as much as three times from original prices.Reuse content