The announcement was made after a Malaysian court ruled that a North Korean man, faced with money laundering charges, would be extradited to the United States.
In a strongly-worded statement carried by state media, KCNA, officials from North Korea expressed their dissatisfaction with the act said that both Malaysia and the US would pay the price for their actions.
"With regard to the grave situation that has prevailed, the Ministry of Foreign Affairs of the DPRK hereby announces total severance of the diplomatic relations with Malaysia which committed super-large hostile act against the DPRK in subservience to the U.S. pressure.
"From this very moment, the Malaysian authority will bear full responsibility for all the consequences to be incurred between the two countries.
"We warn in advance that the U.S. - the backstage manipulator and main culprit of this incident - that it will also be made to pay a due price," the statement read.
Money laundering claims
According to a report by Reuters, Malaysia's courts had made the ruling to extradite the North Korean man, Mun Chol Myong, on 9 March.
Mun was arrested in 2019 after the United States accused him of laundering funds through front companies.
He was also said to have issued fraudulant documents to support illicit shipments to North Korea.
These shipments, according to a report by Bloomberg, were said to have violated international sanctions put in place against the country for defying United Nations resolutions when it came to the testing of nuclear weapons and ballistic missiles.
Mun had maintained that the accusations against him were politically motivated.