The law was passed by the state assembly of Kelantan, controlled by the opposition Pan-Malaysian Islamic Party (PAS). It is feared the move will threaten the unity of the three-party opposition coalition.
The alliance - known as Pakatan Rakyat (People's Pact) - is formed by PAS, the Democratic Action Party (DAP), which represents the country's ethnic Chinese minority, and the multi-racial People's Justice Party.
"PAS has openly demonstrated that they cannot be trusted," Gobind Singh Deo from the DAP was quoted by AFP as saying. "It is therefore now untenable for us to remain in any relationship with PAS."
PAS tried to implement the Islamic criminal code, or hudud, in Kelantan, but failed to do so as it is forbidden by the country's federal constitution. However, the party is to propose two bills which, if passed, will allow the introduction of hudud in Kelantan.
In March, the Kelantan chapter of the Malaysian Chinese Association (MCA) - part of Malaysia's ruling coalition Barisan Nasional (BN) - denied allegations that parties in Kelantan support the hudud.
The state's MCA deputy chairman, Tan Ken Tan, told the Malay Mail Online: "MCA definitely will not support [hudud], not only at the Kelantan level, at the national level," he said, adding MCA will "definitely" ask its fellow party members who are MPs to vote against the two bills.