The comments by Prime Minister Najib Razak met with immediate dismay from Christians, who have called the issue an example of growing Islamic intolerance that threatens to tarnish the Muslim-majority country's moderate image.
Muslim conservatives including the country's king have recently stepped up demands that Malay-speaking Christians not use the Arabic word to refer to the Christian God, saying it is reserved for Muslims.
"Allah" also is used by the Muslim ethnic Malay majority in Islamic worship.
Najib's government in 2011 announced a compromise that allowed limited use of the word by non-Muslims.
But today he said the so-called "10-point agreement" was subservient to other laws and royal decrees.
"The 10-point agreement is subjected to federal and state laws," Najib was quoted saying by news portal Malaysiakini.
As tensions have resurfaced in recent weeks, Christians have called on Najib -- who portrays himself as a moderate -- to speak out in support of minorities' constitutionally guaranteed freedom to worship as they see fit.
Malay-speaking Christians say they have used "Allah" to refer to their God for hundreds of years.
Shastri told AFP churches would continue to do so in their services and in Bibles.
"We are going to take it up with the government again, that they are going back on their word."
Malay Muslims make up 60 per cent of multi-ethnic Malaysia's 28 million people. About 2.6 million people are Christians.
Malaysia has an array of state-level laws and religious decrees against non-Muslims using the word, but they have historically not been strenuously enforced.
The Herald has challenged the order in a long-running court battle.
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