Malaysia will host its 20th and final grand prix at Sepang in 2018.
The country's tourism minister Nazri Abdul Aziz told the state-run Bernama news agency that the decision had been taken for financial reasons.
"We spend 300m ringgit (£54.6m) per year but are not getting 300 million back," he said. "There are no returns on the grand prix."
He also admitted that local crowd numbers are down because "people have lost interest", but said that is not a phenomenon that is unique to Malaysia.
"I don't think there is anywhere in the world where the number of spectators for F1 has increased," Nazri said.
Daniel Ricciardo topped the podium at the 2016 iteration of the grand prix.
