The ships are lying off the southeastern tip of southern Johor state which faces onto Singapore, positioned outside port limits to avoid charges and official scrutiny.
Some authorities said they believed the ships were waiting out the export slump that has deprived them of cargo, while others said they were being used to conduct illegal oil transfers.
"These vessels are not supposed to anchor there. This activity is considered illegal," Johor Port Authority assistant general manager Damon Nori Masood told AFP.
"All of these ships are off port limits, and some are just one metre away from the boundary line, making us unable to take action," he said, adding that the vessels are all believed to be foreign owned or flagged.
Damon Nori said the ships are anchored in a narrow strait known as the "traffic separation scheme" (TSS) -- designed as a free passage area to allow authorities to control the movement of vessels in and out of the port.
The huge flotilla is illuminated at night, presenting the illusion of a floating city off the coast. Malaysian newspaper reports have said there are several hundred vessels now gathered there.
Fishermen from coastal villages have complained about seeping pollution which is threatening their livelihood, and Damon Nori said the idle ships pose a safety hazard for vessels attempting to enter the port.
"These ships are blocking the way of the vessels coming to our anchorage, because they need a bigger space when they turn into the anchorage but the TSS is just full of vessels, big or small," he said.
"This anchoring is very much disturbing the passage. The enforcement agency should clear up the area, as there are also concerns over oil spills causing environment issues," he added.
Azlan Mohamad, a fisherman in the area for the past two decades, said that some 300 to 400 ships were parked in the area, causing harm to the industry with oil spills and illegal cleaning of their tanks.
"The ships sit in our fishing area and make our fishing difficult. The ships also dump sludge at night to avoid detection," he told AFP.
"When we ask the ship not to throw anchor, they ignore us and often tell us to fish elsewhere. They are very arrogant," the 43-year-old told AFP.
"The anchored vessels have affected the income of some 3,000 fishermen. Our daily catch has fallen and the oil spills have made our lives more difficult as they damage our nets."
Port authorities declined to identify which agency they believe is responsible for dispersing the ships, and various maritime authorities contacted by AFP passed the buck or said they were unaware of the problem.
The New Straits Times this week quoted Malaysian Maritime Enforcement Agency (MMEA) officials as saying that eight tankers had been seized in recent days for offences including illegal tank cleaning.
"Some of the dilapidated ships that were left there for quite some time may have been used to cover the illegal oil transfer activities," MMEA's southern region head Che Hassan Jusoh reportedly said.
"Oil transfers or bunkering, where one ship transfers its cargo of oil to another while at sea, can only be done once these vessels have a domestic merchant shipping license for such activities," a Malaysian Maritime Enforcement Agency official told AFP.
The process is licensed because of the marine pollution that can occur if it is not done correctly and the transfers must take place in specially gazetted areas because of the danger of fire.
'This is illegal'
But senior marine police officials say they are mostly hamstrung by ambiguous laws and that there is "no black and white" legislation empowering them to clamp down.
However, an official from the marine department in the transport ministry disagreed.
"The law does not directly say anchoring (is illegal) but it falls under 'any other activities' in the section. Everybody in the maritime agencies knows this is illegal," said Fuad Naemoon.
Under the law, the owner, master or agent of an errant ship can be punished by up to two years in jail and a fine, according to Fuad, who heads the port and seafarer division in the southern region office that oversees Johor.
"The enforcement units should be pro-active," he said, pointing a finger at the marine police and MMEA.
"This has happened for almost two years and the number of ships there is increasing since the economic crisis. The government is suffering losses if these ships continue not to report (their presence) and are not paying dues."
Source: Malaysian Mirror