Some 5,000 demonstrators marched on the Kuala Lumpur mission after the main weekly Muslim prayers in a nearby mosque, chanting and waving banners that read "Hands off Jerusalem" and "Down USA President Trump".
Trump's announcement, which has been met by an almost universal diplomatic backlash, sparked Palestinian protests and clashes with Israeli security forces, as well as a call for a new intifada from Hamas' leader.
The status of Jerusalem is deeply sensitive for Muslims, and protesters have started taking to the streets in cities across the world following the policy shift.
"What you did is against international law - Muslims cannot accept your action," he said in a speech to the crowd during the hour-long protest.
Mohamad Rasul, a 51-year-old train driver taking part in the demonstration, described Trump's move as "a slap in the face for Muslims.
"This insensitive action will inflame the hearts of Muslims worldwide."
Police said 5,000 demonstrators took part in the protest, which passed off largely peacefully.
In Afghanistan, more than 1,000 protesters hit the streets after Friday prayers in Kabul, carrying banners reading "Death to Israel" and "Death to America".
The demonstrators burned effigies of Trump as well as American and Israeli flags in the centre of the Afghan capital. A few dozen tried to reach the heavily-barricaded US embassy, but were pushed back by local security forces.
Around 2,500 demonstrators also protested in the western city of Herat, an AFP correspondent reported, while 500 people rallied in Kunduz, in the north-east of the country, according to an AFP reporter.
Trump's recognition of Jerusalem as Israel's capital puts him at odds with the international community, which insists the issue can only be resolved in negotiations.
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