Abdullah Ahmad Badawi said the move would "inject more excitement and dynamism in both the property and financial sectors".
Experts believe that abolishing the property gains tax will encourage investment from overseas buyers and bring more liquidity into Malaysia's market.
"Going forward to further improve the national property sector, the government has decided not to impose real property gains tax throughout the country commencing April 1st 2007," the prime minister said.
The announcement follows fears that the undervalued Malaysian property market is stagnating, especially if compared with Singapore.
According to news site Amberlamb, the stability of the property market in Malaysia is largely dependant upon the stability of the economy, which is expanding "at a sustainable rate" thanks to links with China, Japan and the US.