The fire Tuesday razed more than 30 homes of a village in the Sandakan district of eastern Sabah state, leaving more than 300 people homeless, local police chief Rosli Mohamad Isa said.
"Almost the entire village" was burned down, he told The Associated Press without elaborating.
Most of those who lost their homes are Malaysians, but some are immigrants from Indonesia and the Philippines, he said, adding that they have all been temporarily placed in makeshift tents.
The 29-year-old man who allegedly started the fire claimed he had an argument with his wife while drunk, Rosli said.
He added that police have detained the man in an arson investigation.