Malaysia is one of several Muslim states that have no formal diplomatic ties with Israel and the Palestinian cause has widespread support in the country. It is forbidden to enter the country on an Israeli passport.
Malaysia has been stripped of the right to host the 2019 World Para Swimming Championships over its stance on Israel and the treatment of Palestinians in Israeli-occupied territories.
The International Paralympic Committee said on Sunday that the step was taken after Malaysia threatened to refuse to allow Israeli athletes to take part.
Kuala Lumpur - a predominantly Muslim country - said earlier this month it would refuse to host events that have Israeli participation with Malaysian Prime Minister Mahathir Mohamad drawing an analogy between the ban and Trump's border wall.
Malaysia is one of several Muslim states that have no formal diplomatic ties with Israel. It is forbidden to enter the country on an Israeli passport.
The decision was taken after the Malaysian authorities "failed to provide the necessary guarantees that Israeli Para swimmers could participate, free from discrimination, and safely in the Championships," the IPC said in a statement.
IPC President Andrew Parsons said: "When a host country excludes athletes from a particular nation, for political reasons, then we have absolutely no alternative but to look for a new Championships host.
"All World Championships must be open to all eligible athletes and nations to compete safely and free from discrimination."
The championships, a qualifying event for the 2020 Tokyo Paralympics, were due to take place in Kuching on July 29-August 4.
Some 600 swimmers from 60 countries had been expected to compete in the championships in the eastern state of Sarawak, with more than 160 titles to be won.
The IPC said all potential replacement hosts were asked to express an interest by February 11.
Responding to Sunday's decision, Malaysia's Youth and Sports Minister Syed Saddiq Syed Abdul Rahman said: "If hosting an international sporting event is more important than standing up for our Palestinian brothers and sisters who get murdered, maimed and tortured by the Netanyahu regime, that means Malaysia has truly lost its moral compass.
"Malaysia stands firm with our decision on the ground of humanity and compassion for the Palestinian plight. We will not compromise," the minister added.
At least 245 Palestinians have been killed by Israeli forces since March, mostly during protests and border clashes but also by tank fire and air strikes.
The Palestinian cause has widespread support in Malaysia.
Malaysia has prevented Israeli athletes from competing in a sports event before.
Two Israeli windsurfers had to pull out of a competition on the island of Langkawi after they were refused visas in 2015.
Kuala Lumpur also refused to host a conference for world football's governing body FIFA in 2017 as an Israeli delegation was due to attend.
Parsons said that in September 2017, the IPC received assurances that all eligible athletes and countries would be allowed to participate in the event with their safety assured.
"Since then, there has been a change of political leadership and the new Malaysian government has different ideas...
We are disappointed that Israeli athletes would not have been allowed to compete in Malaysia," he said. "Politics and sport are never a good mix and we are disappointed that Israeli athletes would not have been allowed to compete in Malaysia."
A UN agency had published a report in March 2017 that said Israel was imposing an “apartheid regime” of racial discrimination on the Palestinian people, the first time a UN body had clearly made the charge.
South Africa had been banned from international sporting events for two decades during the country's apartheid era.