The earliest recorded Malay kingdoms grew from coastal city-ports established in the 10th century AD. These include Langkasuka and Lembah Bujang in Kedah, as well as Beruas and Gangga Negara in Perak and Pan Pan in Kelantan. It is thought that originally these were Hindu or Buddhist nations. Islam arrived in the 14th century in Terengganu.

In the early part of the 15th century, the Sultanate of Malacca was established under a dynasty which was started by a prince by the name of Parameswara from Palembang who fled from the island Temasek, which is now Singapore. With Malacca as its capital, the sultanate controlled the areas which are now Peninsula Malaysia, southern Thailand (Patani), and the eastern coast of Sumatra. It existed for more than a century, and within that time period Islam spread to most of the Malay archipelago. Malacca was an important trading port.

Portugal made Malacca a colony in 1511 by military conquest, thus ending the Sultanate of Malacca. The first Malacca sultan was Parameswara. However, the last Sultan fled to Kampar in Sumatra and died there. One of his sons went to northern peninsular Malaysia and established the Sultanate of Perak, and another son went to the south of the peninsula and made his capital there. This new kingdom was the continuation of the old Malacca sultanate but now known as the Sultanate of Johor, which still exists today. After the fall of Malacca, three nations struggled for the control of Malacca Strait: the Portuguese (in Malacca), the Sultanate of Johor, and the Sultanate of Aceh; and this conflict went on till 1641, when the Dutch (allied to the Sultanate of Johor) gained control of Malacca. The British took control of Malacca after the Anglo-Dutch Treaty of 1824.

The British Crown Colony of the Straits Settlements was established in 1826, and Britain gradually increased its control over the rest of the peninsula. The Straits Settlements consisted of the three ports of Singapore, Penang, and Malacca. Penang (Pearl of The Orient) was established in 1786 by Captain Francis Light as a commercial outpost granted by the Sultan of Kedah. Malacca came into British hands after the Anglo-Dutch Treaty; and two years later the Straits Settlements were formed. These settlements were collectively ruled from the British East India Company seat of government in Calcutta until 1867 when their administration was transferred to the Colonial Office in London.

It was also about this time that many Malay states decided to obtain British help in settling their internal conflicts. Less than ten years after the transfer of power was completed with several west coast Malay States coming under under British influence. The role of the merchants of the Straits Settlements saw British government intervention in the affairs of the tin producing states in the Malay Peninsula. Coupled with Chinese secret society disturbances and civil war, British gunboat diplomacy was employed to bring about a peaceful resolution that favoured the merchants of the Straits Settlements. Finally, the Pangkor Treaty of 1874 paved the way for British expansion; and by the turn of the 20th century the states of Pahang, Selangor, Perak, and Negeri Sembilan, known together as the Federated Malay States (not to be confused with the Federation of Malaya), were under the rule of British residents appointed to advise the rulers/Sultans.

The other Peninsular states were known as the Unfederated Malay States and, while not directly under rule from London, had British advisors in the Sultans' courts. The four northern states of Perlis, Kedah, Kelantan, and Terengganu were previously under Thai control. British North Borneo (currently the state of Sabah) was a British Crown Colony formerly under the rule of the Sultanate of Sulu, whilst the huge jungle territory of Sarawak was the personal fiefdom of the Brooke (White Rajah) family.

Following the Japanese occupation during World War II, popular support for independence grew, coupled with a communist insurgency. Post-war British plans to form a "Malayan Union" were overwhelmed by strong Malay opposition who wanted a more pro-Malay system, and demanded only single citizenship as opposed to the dual-citizenship option which would have allowed the significant immigrant communities to have claimed citizenship in both Malaya and their country of origin. Independence was achieved for the peninsula in August 31, 1957 under the name of the Federation of Malaya. (See Hari Merdeka.) Singapore's request to be part of this independent state was rejected by London at the time.

A new federation under the name of Malaysia was formed on September 16, 1963 through a merging of the Federation of Malaya and the British crown colonies of Singapore, North Borneo (renamed Sabah), and Sarawak, the latter two colonies being on the island of Borneo. The Sultanate of Brunei, though initially expressing interest in joining the Federation, pulled out due to opposition from certain segments of the population as well as wrangling over the payment of oil royalties.

The early years of independence were marred by conflict with Indonesia (Konfrantasi) over the formation of Malaysia, Singapore's eventual exit in 1965, and racial strife in the form of racial riots in 1969 (popularly known as Mei 13). The Philippines also made an active claim on Sabah in that period based upon the Sultanate of Brunei's cession of its north-east territories to the Sultanate of Sulu in 1704. The Philippine claim is still on-going.

After the May 13 racial riots of 1969, the controversial New Economic Policy - intended to increase the share of the economic pie owned by the bumiputeras as opposed to other ethnic groups - was launched by Prime Minister Tun Abdul Razak. Malaysia has since maintained a delicate ethno-political balance, and developed a unique rule combining economic growth and a political rule that favours bumiputras (a group including mostly ethnic Malays) and moderate Islam.

Between the 1980s and the early 1990s, Malaysia experienced significant economic growth under Tun Dr. Mahathir bin Mohamad, the 4th prime minister of Malaysia. The period saw a shift from an agriculture-based economy to one based on manufacturing and industry in areas such as computers and consumer electronics. It was during this period, too, that the face of the Malaysian landscape was changed dramatically with the emergence of numerous megaprojects. The most notable of these projects are the Petronas Twin Towers (once the tallest building in the world), KL International Airport (KLIA), the Sepang F1 Circuit, Multimedia Super Corridor (MSC) and Putrajaya (the Malaysian Government's administrative capital).

In the late 1990s, Malaysia was shaken by the Asian financial crisis. Opposition to certain aspects of the existing system was put down by the government. The opposition runs the gamut from socialists and reformists to a party that advocates the creation of an Islamic state.

In 2003, Dr. Mahathir, Malaysia's longest serving prime minister, retired in favour of his deputy, Abdullah Ahmad Badawi, fondly known as Pak Lah. Since his retirement, Dr. Mahathir works as an 'advisor' to the National Oil Company Petronas and the National Car Company Proton. The new government has advanced a moderate view of an Islamic state defined by the term Islam Hadhari.

Politics
The Federation of Malaysia is a constitutional elective monarchy. It is nominally headed by the Paramount Ruler or Yang di-Pertuan Agong, commonly referred to as the king. Kings are selected for five-year terms from among the nine Sultans of the Malay states; the other four states, which have titular Governors, do not participate in the selection.

The system of government in Malaysia is closely modelled on that of Westminster, a legacy of British colonial rule. In practice however, more power is vested in the executive branch of government than in the legislative. The general election must be held at least once every five years. The last general election was in March 2004 and the previous one was in 1999. The ruling coalition is Barisan Nasional.

Executive power is vested in the cabinet led by the prime minister (Perdana Menteri); the Malaysian constitution stipulates that the prime minister must be a member of the lower house of parliament who, in the opinion of the Yang di-Pertuan Agong, commands a majority in parliament. The cabinet is chosen from among members of both houses of parliament and is responsible to that body.

The bicameral parliament consists of the upper house (Dewan Negara, literally "National Hall") and the lower house (Dewan Rakyat, literally "People's Hall"). All 69 Senators sit for 6-year terms; 26 are elected by the 13 state assemblies, and 43 are appointed by the king. The 219 members of the House of Representatives are elected from single-member districts by universal adult suffrage, for a maximum term of 5 years. Legislative power is divided between federal and state legislatures.

The state governments are led by chief ministers (Menteri Besar) selected by the state assemblies (Dewan Undangan Negeri) advising their respective sultans or governors.

Every major component party in the Barisan Nasional/National Front ruling coalition owns a widespread media outlet of some sort, whether newspapers or television stations. Naturally, the opposition do not have access to these specifically-owned channels.

Yearly licenses for newspapers (through the Printing and Presses Act) are required for other groups, to prevent public disorder and promote national security.

States
Malaysia is divided into two types of political divisions: states (negeri) and Federal Territories (Wilayah Persekutuan) that collectively have the status of a state.

Eleven states are situated on Peninsular Malaysia, two on Borneo island. Nine peninsular states are monarchies (hereditary sultanates unless otherwise mentioned): Johor, Kedah, Kelantan, Negeri Sembilan (an elective monarchy itself), Pahang, Perak (like Malaysia itself, a system of revolving monarchy with three royal families), Perlis (the only Raja), Selangor, and Terengganu. Melaka (formerly Malacca) and Pulau Pinang (formerly Penang), both on the peninsula and formerly part of the Straits Settlements under direct British control, as well as Sabah and Sarawak, both on Borneo, each have a federally appointed 'head of state'.

Two federal territories Kuala Lumpur (the formal and commercial capital; often abbreviated to KL) and Putrajaya (the new administrative capital city) are located on the Malay Peninsula while Labuan, an island off Sabah, completes the list.

Geography
The two distinct parts of Malaysia, separated from each other by the South China Sea, share a largely similar landscape in that both West and East Malaysia feature coastal plains rising to often densely forested hills and mountains, the highest of which is Mount Kinabalu at 4,095.2 m on the island of Borneo. The local climate is equatorial and characterised by the annual southwest (April to October) and northeast (October to February) monsoons.

Tanjung Piai, located in the southern state of Johor, is the southernmost tip of continental Asia — if Singapore, an island connected to the continent by a man-made causeway, is excluded.

The Straits of Malacca, lying between Sumatra and West Malaysia, is arguably the most important shipping lane in the world.

Putrajaya is the newly created administrative capital for the federal government of Malaysia, aimed in part to ease growing congestion within Malaysia's capital city, Kuala Lumpur. The prime minister's office moved in 1999 and the move is expected to be completed in 2005. Kuala Lumpur remains the seat of parliament, as well as the commercial and financial capital of the country. Other major cities include George Town, Ipoh and Johor Bahru. See also List of cities in Malaysia.

In the 17th century, large deposits of tin were found in several Malay states. Later, as the British started to take over as administrators of Malaya, rubber and palm oil trees were introduced for commercial purposes. Over time, Malaya became the world's major largest producer of tin, rubber and palm oil. These three commodities along with other raw materials firmly set Malaysia's economic tempo well into the mid-20th century.

In 1970s, Malaysia imitated the footsteps of the original four Asian Tigers and committed itself to a transition from being reliant on mining and agriculture to an economy that depends more on manufacturing. With Japan's assistance, heavy industries flourished and in a matter of years, Malaysian exports became the country primary growth engine. Malaysia consistently achieved more than 7% GDP growth along with low inflation in the 1980s and the 1990s.

During the same period, the government tried to eradicate poverty with a controversial race-conscious program called New Economic Policy (NEP).

The rapid economic boom led to a variety of supply problems. Labor shortages became apparent resulting in an influx of millions of foreign workers, not all of whom were legal. Outrageous mega infrastructure projects were proposed to alleviate the bottlenecks faced, mainly by cash rich PLCs and consortiums of banks eager to benefit from increased and rapid development. This all ended when the Asian Financial Crisis hit in 1997, delivering a massive external shock to the financial system.

The year 1997 saw a very sudden and disruptive boom to bust transition caused initially by massive speculative short selling of currency, characteristic of the collapse in the region. Foreign direct investment fell at an alarming rate and Ringgit depreciated substantially from MYR 2.50 per USD to much lower levels (up to MYR 4.80 per USD at its bottom intraday) as capital flowed out from Malaysia and the rest of the region. The Kuala Lumpur Stock Exchange's composite index fell from approximately 1300 to nearly merely 400 points in a few short weeks. After the sacking of the ex finance minister Anwar Ibrahim, a National Economic Action Council was formed to deal with the monetary crisis. Bank Negara imposed capital controls and pegged the Malaysian Ringgit at 3.80 to a US dollar. Economic aid from International Monetary Fund (IMF) and World Bank was refused, surprising analysts unfamiliar with the nature of the crisis. The financial sector suffered massive retrenchment as the banking sector was forced to consolidate and bank licenses were withdrawn to prevent further reckless lending. Remaining banks were also allowed to recapitalise through Danamodal, while NPLs were discounted and bought off by Danaharta to provide for an orderly asset realization process.

In March 2005, the United Nations Conference on Trade and Development (UNCTAD) published a paper on the sources and pace of Malaysia's recovery, written by Jomo K.S. of the applied economics department, University of Malaya, Kuala Lumpur. The paper concluded that the controls imposed by Malaysia's government neither hurt nor helped that country's recovery. The chief factor was an increase in electronics components exports, which was caused by a large increase in the demand for components in the United States, which was caused, in turn, by a fear of the effects of the arrival of the year 2000 (Y2K) upon older computers and other digital devices.

However the post Y2K slump of 2001 did not affect Malaysia as much as other countries. This may have been clearer evidence that there are other causes and effects that can be more properly attributable for recovery. One possibility is that the currency speculators had run out of finance after failing in their attack on the Hong Kong dollar in August 1998 and after the Russian Ruble collapsed. (See George Soros)

Regardless of cause/effect claims, rejuvenation of the economy also coincided with massive government spending and budget deficits in the years that followed the crisis.(2% to 5% of GDP) Later, the country enjoyed faster economic recovery compared to its neighbors though in many ways, the level of pre-1997 affluence has yet to be achieved. The alternative claim is that pre 1997 affluence was fueled by an asset price bubble.

While the pace of development is not as frenetic, it is also seen to be more sustainable. And, although the controls and economic housekeeping may not have been the principal reason for recovery, there is no doubt that the banking sector is more resilient to external shocks. The current account has also settled into a structural surplus providing a cushion to capital flight. Asset prices also are a fraction of their heights pre crisis.

The fixed exchange rate regime was abandoned in July 2005 in favor of managed floating system within an hour of China's announcing of the same move. In the same week, Ringgit strengthened a percent against various major currencies and was expected to appreciate further. As of December 2005 however, expectations of further appreciation was muted as capital flight exceeded USD 10 billion.

In September 2005, Sir Howard J. Davies, director of the London School of Economics, at a meeting Kuala Lumpur, cautioned Malaysian officials that if they want a flexible capital market, they will have to lift the ban on short selling created in 1997.

• Islamic banking in Malaysia
• List of Malaysian companies

Non-Malay indigenous groups make up more than half of the state of Sarawak's population, constitute about 66% of Sabah's population, and also exist in much smaller numbers on the Peninsula, where they are collectively called Orang Asli. The non-Malay indigenous population is divided into dozens of ethnic groups, but they share some general cultural similarities. Other Malaysians also include those of, inter alia, European, Middle Eastern, Cambodian, and Vietnamese descent. Europeans and Eurasians include British who colonized and settled in Malaysia and some Portuguese, and most of the Middle Easterners are Arabs. A small number of Kampucheans and Vietnamese settled in Malaysia as Vietnam War refugees. Population distribution is uneven, with some 20 million residents concentrated on the Malay Peninsula.

May 13, 1969 saw an incident of civil unrest which was then thought to be largely due to the socio-economic imbalance of the country along racial lines, though in retrospect it may have been more motivated by political firebrands in both governing and opposition parties, as the violence involved only the areas in and around the capital, with much of the country remaining at peace. This incident led to the adoption of the New Economic Policy as a two-pronged approach to address racial and economic inequality and to eradicate poverty in the country.

Due to the rise in labour intensive industries, Malaysia has 10 to 20 percent foreign workers with the uncertainty due in part to the large number of illegal workers; there are a million legal foreign workers and perhaps another million unauthorized foreigners. The state of Sabah alone has nearly 20% of its 2.5 million population listed as illegal foreign workers in the last census. Unauthorized foreigners are subject to RM10,000 fines and two-year prison terms, while Malaysian employers face up to a year in jail and a fine of up to RM50,000 for each illegal worker hired, with those hiring more than five also liable to caning. Caning is a standard punishment for more than 40 crimes in Malaysia, ranging from sexual abuse to drug use. Administered with a thick rattan stick, it splits the skin and leaves scars.

Some 380,000 unauthorized foreigners left during an "amnesty" that began in Fall 2004 and was extended several times. During amnesties, unauthorized foreigners can leave without paying fines for being illegally in the country. On March 1, 2005, some 300,000 policemen as well as the 560,000-strong Peoples Volunteer Corp began searching for the remaining unauthorized foreigners under Operation Tegas; the volunteers receive RM100 for each foreigner arrested. Source: Migration News, April April 2005 Volume 12 Number 2

The Chinese comprise of about a quarter of the population. They are mostly Buddhists (of Mahayana sect), Taoists or Christian, and speak a variety of Chinese dialects including Hokkien/Fujian, Cantonese, Hakka and Teochew , and have been historically dominant in the business community.

The Indians account for about 7% of the population. They are mainly Hindu Tamils from southern India, speaking Tamil, Telugu, Malayalam, and Hindi, living mainly in the larger towns on the west coast of the peninsula.

There is also a sizeable Sikh community. Eurasians, Cambodians, Vietnamese, and indigenous tribes make up the remaining population. A small number of Eurasians, of mixed Portuguese and Malay descent, speak a Portuguese creole, called Papia Kristang. There are also Eurasians of mixed Malay and Spanish descent, mostly in Sabah. Descended from immigrants from the Philippines, some speak Chavacano, the only Spanish creole in Asia. Cambodians and Vietnamese are mostly Buddhists (Cambodians of Theravada sect and Vietnamese, Mahayana sect).

Malaysian traditional music is heavily influenced by Chinese and Islamic forms. The music is based largely around the gendang (drum), but includes other percussion instruments (some made of shells); the rebab, a bowed string instrument; the serunai, a double-reed oboe-like instrument; flutes, and trumpets. The country has a strong tradition of dance and dance dramas, some of Thai, Indian and Portuguese origin. Other artistic forms include wayang kulit (shadow puppet theatre), silat (a stylised martial art) and crafts such as batik, weaving, and silver and brasswork.