Prime Minister Dr Mahathir Mohamad acknowledged today that a mass expulsion of illegal immigrants had hurt Malaysia's construction industry but indicated that employers must now be prepared to pay the relatively higher costs of legal workers.

Asked whether employers were holding the government to ransom by forcing it to reverse a decision on immigrants, Mahathir told reporters there was no reversal but "if they want to have (foreign labour) they must only employ legal ones, so they'll have to pay."

The government would not penalise employers who had in the past used illegal labour because "we'll penalise ourselves ... the construction industry is not moving," he was quoted as saying by the official Bernama news agency.

Illegal Indonesian immigrants made up 70 percent of the building industry's 500,000 foreign workers before a crackdown in recent months, according to the Master Builders Association of Malaysia (MBAM).

Many of them were among the more than 380,000 people who left for home during a four-month amnesty ahead of the introduction of tough new penalties for illegal immigrants which came into effect on Aug 1.