"The Cabinet has agreed to end the Formula 1 Grand Prix effective 2018 in view of the low returns compared to the cost of hosting the race", PM Najib said.
With the circuit's medical helicopter unable to land at the nearest hospital in case of an accident, F1 canceled the afternoon session completely and gave drivers the green light for only about 20 minutes in the morning.
Malaysia spends 300 million ringgit ($67.6 million) each year to host the race but was not getting any return on its investment, according to Tourism and Culture Minister Nazri Aziz.
Indeed the day's second 90-minute session was delayed and then eventually cancelled before a single auto had taken to the track.
Hamilton, a three-time world title victor, recalled the "wheel-to-wheel" battles of his go-cart driving days in saying he looked forward to a season-long fight with Vettel.
Hamilton crossed the track to the grandstands to wave at his cheering fans before throwing signed merchandise up to them.
Amid concerns of further bad weather on Sunday, teams had considered the possibility of shifting the race to Saturday when the forecast is better.
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"The track was absolutely fine and we could have run all day today with no issue if it weren't for the clouds", Hamilton said. It was a shame, especially of the people who came to watch.
"They've barely seen a auto on track today, which must be tough for them".
"We need to work together with the FIA and (commercial rights holder) FOM to find a solution or an alternative plan of some kind when we have circumstances like this in the future".
Teenager Max Verstappen's opening session-topping effort of one minute, 50.491 seconds in damp and drizzly conditions, therefore remained the fastest time of the day, with only 14 drivers registering a lap.
Fourteen drivers set a time during the brief window of track action, going out on a mix of intermediate and wet-weather tyres.
It was treacherous going for Kevin Magnussen of Haas, who spun out twice, and Renault's Nico Hulkenberg beached his vehicle on a gravel embankment and had to abandon it.