Malaysian officials have ordered schools closed and advised people to stay indoors or wear masks outside while a fog-like yellow haze envelopes the capital, Kuala Lumpur, and surrounding areas.
Government officials say they will begin seeding clouds in an attempt to cause rain and wash away the dust and smoke from the air.
The smoke from hundreds of out-of-control fires has drifted over to Malaysia from Indonesia's nearby Sumatra Island, which lies west of the Malaysian mainland.
The smoke, a mixture of ash, dust, carbon dioxide, and sulfur dioxide, has caused Malaysia's pollution index to rise above the 500 level, which is considered extremely hazardous to health, in two west coast towns.
Pollution levels in Kuala Lumpur have reached 321, with the tops of buildings disappearing in the yellow haze. An environment ministry statement said the air quality in the capital and several other cities was "unhealthy."
Indonesia's Environment Minister, Rachmat Witoelar, said Malaysian and Indonesian officials are holding crisis meetings in the north Sumatran capital of Medan to discuss ways to contain the fires, but he says it will not be an easy task. "I'm not saying that we can combat easily because the dry season is continuing as of now. I mean we need a wetter climate for us to effect conducive efforts to put out the fires because in a technical sense it is very difficult to put out the fires," he said.
Indonesia's rainy season is not expected to begin until October, and during the dry season, fires spread easily.
Mr. Rachmat says there are several reasons for the yearly fires, the majority of them man-made - with farmers, plantation owners, and miners burning land to clear the forest during the dry season in both Sumatra and Kalimantan Islands.
Malaysian companies also own large tracts of palm oil plantations in Sumatra. "First of all there's spontaneous [fires] in the woods itself. Secondly, the majority are in the plantations, and by the local population who are clearing land, because this is the dry season so some of them get out of hand," said Mr. Rachmat.
Mr. Rachmat said Indonesia regrets being the cause of Malaysia's troubles. "I mean this is certainly not intentional and we regret that this happens. We have full empathy of the Malaysian population who are suffering from the effects of these fires," he said.
Malaysia rushed a team of firefighters to Indonesia during a similar crisis in 1997 when large parts of Malaysia and Southeast Asia were covered in haze from smoke from fires in neighboring Indonesia.
