Malaysia drew a record RM20.2 billion in foreign investments in its manufacturing sector in 2006, but is facing more competition for funds, the government said today.

Trade Minister Rafidah Aziz said last year's 12.8 percent increase in foreign direct investments from RM17.9 billion in 2005 was the "highest level recorded to date."

"Despite the increasing global competition, Malaysia continues to attract global foreign investment outflow, reflecting the country's cost-competitiveness as a manufacturing and export base," she told reporters.

A total of 1,077 manufacturing projects worth RM46 billion were approved in 2006, far exceeding the RM27.5 billion annual target set under a 15-year government industralisation plan, she said.

Japan was the largest foreign investor for the manufacturing sector in 2006, with RM4.4 billion invested from RM3.7 billion in 2005.

Other major investors were from the Netherlands, Australia, the United States and Singapore, according to the Malaysian Industrial Development Authority's annual report released Tuesday.

The electrical and electronics sector remained the largest draw, seeing RM8.6 billion in foreign investments or 42.6 percent of total approved investments in manufacturing in 2006, it said.

However, MIDA in its outlook warned Malaysia was facing increasing competition from emerging economies for foreign direct investment.

"While FDI flows to Asia are expected to continue to increase, Malaysia's ability to attract these inflows will, to a large extent, depend on Malaysia's investment environment as well as competitiveness," it said.