Under section 61 of Malaysia's proposed bio-safety bill, any GM products sold in the country would face mandatory labelling, a notion unpopular with some US biotech companies.
The issue highlights globally divided opinion regarding the use of GM products within the food chain.
The passing of the bill could also significantly affect Malaysia's food industry by setting back free trade talks with the US government, which has long opposed any plans to label GM products.
In order to push through with trade talks, the US may try to pressure Malaysia to drop section 61 in the bill dealing with GM labelling.
North Malaysia's rice farmers in particular are unhappy with the US stance, suggesting that failure to impose labelling could see biotech companies flood the market with GM products and eat into their domestic markets.
Their stance was backed by the president of the Consumers Association of Penang, S. M. Mohamed Idris.
''Such demands are unreasonable and if they are agreed to it would mean that the health and environmental concerns of Malaysians will be pushed aside for the benefit of foreign companies selling food containing GM [produce],'' he said in a statement.
Publicly at least, the Malaysian government also appears keen to establish mandatory GM labelling in a drive to legitimise its own biotechnology sector. Government's labelling proposal is also backed by some rival politicians in the country.
Lim Kit Siang, opposition party leader, wrote in his online blog that Malaysia should fall in line with other countries in opposing objections to GM labelling.
"Many countries (such as Japan, China and many European countries, and even Australia which signed an FTA with the US) already require mandatory labelling," he wrote last month.
"This is consistent with the WTO Agreement on Technical Barriers to Trade which states that 'technical regulations shall not be more trade-restrictive than necessary to fulfil a legitimate objective'."
US business lobbies refute these claims, suggesting that mandatory labelling could suggest to consumers that the product was inferior or should be avoided for safety reasons.
They fear that labelling requirements could undoing the work of the biotech industry and associated organisations in promoting the potential benefits of using GM crops and ingredients in food processing.
The biotech industry is determined to push the message of the positive affects GM use could bring to agriculture and food processing.
For example, drought resistant crops is seen as a key development for the growth of the GM industry, according to the International Service for the Acquisition of Agri-biotech Applications (ISAAA).
The industry organisation predicts that the drought resistant genes, which expected to be available for commercial use by around 2011, will significantly reduce the effects of low rainfall on grain production.
These claims have failed to sway the opinions of environmental groups though.
Groups, including Friends of the Earth and Greenpeace, continue to oppose any use of GM crops on the grounds that the long term health effects remain unknown and could pose a risk to both consumers and the environment.