Thousands of Malaysians in Sabah state are returning home after fleeing to higher ground when the country issued its first tsunami alert.
The warning came after an undersea earthquake in neighbouring Philippines and resulted in panic and traffic jams among locals and tourists.
The Malaysian government says it will have an official tsunami warning system in place by the end of the year.
The sea between the Philippines and Malaysia is one area to be monitored.
Sunday's alert came from the prime minister's Crisis and Disaster Centre after it was alerted by the meteorological department to the 7.2 magnitude quake in seas near the Philippine island of Mindanao.
Tremors were reportedly felt in several parts of Sabah state, which is on Malaysian Borneo.
"Our department immediately sent out the alert to the Malaysian Control Centre, which relayed the message to the Sabah police, military, the information ministry and the local meteorological department," said centre director Muhamed Muda.
Local people and tourists were urged to evacuate coastal areas and head for higher ground, causing panic across the state.
Sabah's chief minister Musa Aman was quoted by the AFP news agency as saying the panic showed an early warning system was needed for the region.
Malaysia's science minister Jamaludin Jarjis said such a system would be in place by the end of the year to protect the northern peninsula and Sabah and Sarawak states on Borneo island.
The Sultanate of Brunei has also asked to take part in the $5m (£2.6m) project, he said.
Mr Jarjis added that he hoped it would link up to the Pacific Tsunami Warning Centre in Hawaii and to similar centres in Japan, and would be installed with US and Japanese expertise.
Malaysia lost around 68 people, mostly fishermen, when the 26 December tsunami hit the north-western coastline.
A tsunami early warning system for the whole Indian Ocean region has been discussed at several international conferences in recent weeks.
There has been no consensus on where it would be based, although it was agreed that the UN should start work on an interim decentralised network.