The bill provides a legal framework for the so-called CCUS, which the Southeast Asian nation says could be a key economic driver, worth up to $250 billion and the source of hundreds of thousands of jobs by 2050.
CCUS seeks to eliminate emissions created by burning fossil fuels for energy and from industrial processes.
The carbon is captured at source and stored permanently in various underground environments.
It has been promoted by emitting sectors including heavy industry and the oil and gas sector, and has backing from the United Nation's key scientific panel on climate change as a solution for difficult to decarbonise industries.
However, some scientists and environmentalists view it as a licence to continue burning fossil fuels and cite doubts over its effectiveness, given its cost and complexity.
Malaysia's Economy Minister Rafizi Ramli said the bill would help the country address climate change, while strengthening its position as a "regional frontrunner in low-carbon technologies."
CCUS offers a "new source of economic growth," he added.
"This will enable Malaysia to become a global leader in CCUS because, at present, only Norway has successfully implemented it effectively."
Malaysia argues it is particularly well-placed for CCUS, in part because of an abundance of depleted oil reservoirs to store captured carbon dioxide.
The bill's regulations on the import and permanent storage of carbon dioxide in offshore areas come into force from March 31.
However, it will only apply to Peninsular Malaysia and the Federal Territory of Labuan -- off the coast of the Malaysian portion of Borneo Island.
The eastern states of Sabah and Sarawak requested to be excluded as part of a broader push for greater economic autonomy.
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