The department will trace and penalise employers who have not provided insurance for their workers, Labour Department director-general Sheikh Yahya Sheikh Mohamed said.
Malaysia heavily relies on foreign labour to help out in the construction, plantation sector as well as gardeners, house maids and in restaurants.
The number of registered foreign workers in the country with a population of 28 million people was estimated at about 1.8 million people.
The foreign workers are from Indonesia, India, Bangladesh, Myanmar and other countries.
"Based on records from the Manpower Department, only 1.2 million workers have been insured as stipulated under The Workmen's Compensation Act 1952.
"This means more than 600,000 foreign workers here have not been insured," Yahya said in a statement adding that the department would take legal action against those who failed to insure their workers.
Employers can face a maximum two years' jail sentence and a fine of up to Ringget 20,000, about 2,40,000 rupees, or both.