The extraordinary tit-for-tat actions come amid North Korean fury at Malaysia's ongoing investigation into his death at a Kuala Lumpur airport.
The North Korean leader's half-brother was killed with a potent nerve agent.
Malaysia has not directly blamed the North for this, but there is widespread suspicion Pyongyang was responsible.
North Korea has fiercely denied any accusations of culpability and the row over the killing - and who has the right to claim Mr Kim's body - has rapidly escalated over the past two weeks.
Both Malaysia and North Korea have already expelled each other's ambassadors.
The state news agency KCNA said on Tuesday that "all Malaysian nationals in the DPRK [Democratic People's Republic of Korea] will be temporarily prohibited from leaving the country until the incident that happened in Malaysia is properly solved".
It said this was to ensure the safety of it citizens and diplomats in Malaysia.
Malaysians in North Korea country would be able to carry on their lives as normal, it added.
How did Malaysia respond?
Furiously. Malaysian Prime Minister Najib Razak said it was an "abhorrent act" which was "in total disregard of all international law and diplomatic norms".
Malaysians were effectively being held hostage in North Korea, he said in a statement.
"Protecting our citizens is my first priority, and we will not hesitate to take all measures necessary when they are threatened."
Initially, Deputy Prime Minister Ahmad and Home Minister Zahid Hamidi had said that in response, North Korean embassy staff and officials would not be allowed to leave.
"We need to take similar steps as they have manipulated the murder," he was quoted as saying.
But Mr Najib later said the ban would extend to all North Koreans.
BBC
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