Malaysian Information, Communications and Culture Minister Rais Yatim said free speech did not include causing or creating hatred among Muslims against those who had debased their religion.
He described YouTube as being insensitive to the anguish of Muslims the world over as it has yet to remove film clips from its listing.
"That's how insensitive they are," Dr Rais Yatim said in a statement today.
Given the widespread protests in the Islamic world, he said, YouTube had every reason to take off the film from its listing.
"YouTube appears to be oblivious to the tumult it has caused. The owner of YouTube does not deserve to be spared the ire of Muslims or the long arm of the law," he added.
Rais said the country's public prosecutor had every right under the Penal Code to book quarters who cause disharmony, disunity or feelings of enmity, hatred or ill-will on grounds of religion between groups of persons who had violated the Penal Code.
He said the powers of the authorities under the Communications and Multimedia Act could also be invoked.
The film has caused widesrpead protests cross the Muslim world including in Egypt, Libya, Yemen, Sudan, Afghanistan and Pakistan.
Google said earlier that it had begun barring access in Malaysia to an anti-Islamic film after the country's Internet regulator lodged an official complaint.
Google has also said that it was blocking access to the film in India and Indonesia.
