Malaysia, which hosted the 1998 games, had agreed to step in after the Australian state of Victoria withdrew as hosts for similar reasons in July last year.
Malaysia has rejected an offer to host the 2026 Commonwealth Games – putting it at risk of being cancelled for the first time since the Second World War.
Officials said the Commonwealth Games Federation’s (CGF) offer of £100m in funding was insufficient and they had not been left with enough time to plan.
Malaysia, which hosted the 1998 games, had agreed to step in after the Australian state of Victoria withdrew as hosts for similar reasons in July last year.
Malaysian government spokesperson Fahmi Fadzil said on Friday: “If we had a longer time, we would definitely do it, but because there’s such a short time, we definitely can’t do it.
“When we assessed the viability of hosting the Games, the length of time needed and the cost was seen to be particularly prohibitive.”
The Games, contested by around 70 countries and territories that used to belong to the British Empire, has struggled to find a host in recent years.
Its past six editions have been held in either the UK or Australia.
Birmingham hosted the last tournament in 2022 but had originally been due to host in 2026.
It offered to move its turn when South Africa was stripped of hosting rights due to a lack of progress shown in its preparations.
This left the CGF scrambling to find a new location, with Victoria the then-only viable option after several other cities pulled out of the bidding process over cost concerns.