Malaysia has strict censorship laws and has banned sensitive material before.
Despacito, by Puerto Rican artist Luis Fonsi, was earlier named the most-streamed song of all time, receiving 4.6bn plays worldwide in six months.
"Despacito will not be aired by the government-owned broadcast stations because we received public complaints," Malaysia's communications minister Salleh Said Keruak told AFP news agency.
"The lyrics are not suitable to be heard," he added.
Meanwhile, privately-owned radio stations have been "encouraged" to "practice self-censorship," he said.
Malaysia's opposition Islamic party, Parti Amanah Negara, had earlier urged the government to censor the Spanish song over its "sexy" content.
Chairwoman of the party's women's wing, Atriza Umar, described the music as "porn" and unsuitable for young children, warning that its content could prove detrimental to society.
The song, featuring Puerto Rican rapper Daddy Yankee, proved popular on social media and went viral soon after its release in January. It found a new lease of life in April when Bieber appeared on a remix.
The title of the Spanish-language song translates as "slowly", which is said to be a reference to the speed of Fonsi's seduction technique.
When the record-breaking single was announced as the most-streamed earlier this week, Fonsi said: "I just wanted to make people dance... and for a song to bring people and cultures together, that's what makes me proud."
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