A video of the May gathering, called the "Nude Sport Games 2014", first appeared on social media earlier this month and went viral.
It showed naked participants engaged in a range of activities including body painting, dancing, relay races and various other contests on a secluded Penang beach.
Co-organiser Albert Yam, who is in police custody, has publicly apologised for the "naturist event" in an open letter to the government of the state of Penang, the New Straits Times reported today.
Yam, who is in his 40s, is a Malaysian who lives in neighbouring Singapore.
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Five more Malaysians are in police custody, while two others have been released after their statements were taken, police said.
"We are still looking for another seven people, including from Myanmar and the Philippines," Penang district police chief Lai Fah Hin told AFP.
Police are investigating participants for acts of public obscenity and "insulting the modesty" of others, charges that could result in five years in prison.
In the video, a naked woman is seen riding horseback on a man, while in another, a nude woman crawls over three unclad men lying next to each other in the sand.
About 60 percent of Malaysia's nearly 30 million people are Muslim ethnic Malays.