Prime Minister Najib Razak called on Muslims worldwide to strongly oppose any recognition of Jerusalem as Israel's capital, as he rallied his party ahead of a tough election due next year.

Muslim majority Malaysia, a significant US ally in Southeast Asia, warned of grave repercussions as it joined other countries condemning President Donald Trump's decision on Wednesday to reverse decades of US policy and recognise Jerusalem as the capital of Israel.

"How can we accept that?" Najib said in his speech at an annual gathering of the ruling United Malay National Organisation (Umno) party in Kuala Lumpur.

"I call on all Muslims across the world to let your voices be heard, make it clear that we strongly oppose any recognition of Jerusalem as Israel's capital for all time."

The opposition Pan-Malaysian Islamic Party (PAS) said it would hold a protest outside the US Embassy on Friday to condemn the decision.

Dogged by a long-running multi-billion dollar scandal at state fund that he founded, Najib is expected to court Muslim sensibilities as he seeks a third term in next year's election, though the strategy could lose votes for his coalition partners from Malaysia's sizable Chinese and Indian minorities.

"At this father of all elections, we will fight to the end," Najib said, leading three cheers of 'God is Great' from the thousands of Umno delegates in the conference hall.

Najib's greatest challenge is expected to come from an opposition alliance that has re-grouped under 93-year-old Mahathir Mohamad - who led Malaysia for 22 years - and charismatic leader Anwar Ibrahim, rather than from the Islamists.

Observers still expect Najib to steer Umno and the multi-racial Barisan Nasional (BN) coalition to victory despite the controversy over state fund 1Malaysia Development Berhad (1MDB).

Najib has denied any wrongdoing in a scandal that is being investigated in at least six countries including Switzerland, Singapore and the United States.

On Monday, US attorney-general Jeff Sessions described the Malaysian graft case as the worst form of kleptocracy, and said the US Department of Justice (DoJ) was working to provide justice to the victims.

Holding onto power, Najib has purged dissent among the 3.4 million members of Umno, clamped down on media and civil society, and blocked a damaging internal probe on him related to graft at 1MDB.

- Reuters