With Satwik pulling out the event due to an ankle sprain, India were forced to field two scratch pairs -- MR Arjun and Chirag Shetty and Dhruv Kapila and Lakshya Sen, both of whom lost their respective ties.
Kidambi Srikanth was the only shuttler to register a win as world no. 11 B Sai Praneeth and HS Prannoy too went down in the other singles in straight games at the Rizal Memorial Sports Complex.
After this loss, India finished second in the group and will now take on Thailand in the quarterfinals on Friday.
After a 4-1 win over minnows Kazakhstan in the opening match, India locked horns with Malaysia and with Satwik missing, the onus was on Praneeth to give India a good start but the world championships bronze medallist lost 18-21 15-21 to world no. 14 Lee Zii Jia.
Chirag and Arjun then lasted just 31 minutes before going down 18-21 15-21 to world no. 8 Malaysian combination of Aaron Chia and Soh Wooi Yik as India lagged 0-2.
Former world no. 1 Srikanth then struggled past 23-year-old Cheam June Wei, a 2014 Youth Olympic Games gold medallist, 14-21 21-16 21-19 to make it 1-2 after the first three ties.
However, makeshift pair of Dhruv and Lakshya couldn't get past world no. 17 pair of Ong Yew Sin and Teo Ee Yi, losing 14-21 14-21 in 27 minutes as Malaysia took an unassailable 3-1 lead.
In the third singles, Prannoy was no match for Leong Jun Hao, a 2017 World Junior Championships silver medallist and a 2017 Asian Junior Champion, as he went down 10-21 15-21 in 34 minutes to hand Malaysia a comfortable 4-1 victory.
It will take a extraordinary effort from India now to get across Thailand in the quarterfinals.
Thailand boosts of quality players such as world no. 12 Kantaphon Wangcharoen, three-time world junior champion Kunlavut Vitidsarn and 2018 Japan Open runners-up Khosit Phetpradab in the singles.