Rob Portman, US Trade Representative, said talks with Malaysia on a Free Trade Agreement were set begin in three months, after consultation with Congress.
The talks would aim to remove tariffs and non-tariff barriers between the two countries. The US wants to reduce, or preferably eliminate, Malaysia's applied tariffs, which it says are twice as high its own.
Exports of manufactured goods to Malaysia, including agricultural products and food, could more than double to $22bn by 2010 under a free trade deal, according to America's National Association of Manufacturers.
Malaysia is already America's fourth largest agricultural market in Southeast Asia, with annual exports of nearly $400m. Overall, Malaysia is the US' tenth largest trading partner in the world.
The move to establish a Free Trade Agreement comes as part of president George Bush's plan for a free trade network across the region. The US government has already set up a deal with Singapore, and is in talks with Thailand and South Korea.
Rob Portman said a deal with Malaysia could be the gateway to "the economically vibrant and strategically important Southeast Asia region".
Two-way trade between Malaysia and the US was worth $44bn in 2005.