Foreign Minister Saifuddin Abdullah said on Wednesday that Malaysia's cabinet had decided on the measure last week.
The majority-Muslim country does not maintain formal diplomatic relations with Israel and has long supported a two-state solution to the conflict between Israel and the Palestinians.
"Even if we have already committed to hosting an event, they (Israelis) will not be allowed (into the country)," the minister said in a recording of a press conference heard by Reuters.
"Secondly, Malaysia will not host any event that has representation from or participation of Israel."
Swimmers from some 70 countries are expected to compete in the event which is an important milestone towards next year's Tokyo Paralympics.
The International Paralympic Committee (IPC) said in a statement that it was "bitterly disappointed at the stance of the Malaysian government.
"While we continue dialogue with the local organising committee and the National Paralympic Committee, the IPC Governing Board will be discussing this matter at its meeting in London next week," it added.
"World Championships should be open to all eligible nations and athletes. We will explore all options open to us to try and ensure the full participation of all eligible athletes."
They have also competed without national symbols, typically under the flag of the sports federation running the event.
In 2016, Egyptian judoka Islam El Shehaby was sent home from the Rio Olympics after refusing to shake the hand of Israeli Or Sasson following the end of their bout.
Thousands in Malaysia and neighbouring Indonesia took to the streets last December to protest Washington's decision to recognise Jerusalem as Israel's capital.
Last month, Malaysia's Prime Minister Mahathir Mohamad criticised Australia's decision to follow the United States in recognising Jerusalem as Israel's capital, saying countries had "no rights" to do so.
Saifuddin said Malaysia would continue to take a strong position on the plight of the Palestinians, which Malaysia considers to be a humanitarian crisis.
"We are looking at the Palestinian issue not simply from the religious point of view... it is a humanitarian, human rights issue," he said.
"It is about fighting on behalf of the oppressed." (Reporting by Joseph Sipalan, additional reporting by Alan Baldwin; Editing by Greg Stutchbury and Gareth Jones)