Dwindling returns
Malaysian officials have said Sepang, which can accommodate 120,000 fans, drew just 45,000 to last month's grand prix, and added that race-day TV ratings were also poor.
In comments on Twitter last month, Sports Minister Khairy Jamaluddin stressed the competition from other events outside of Malaysia.
"F1 ticket sales declining, TV viewership down. Foreign visitors down b/c (because) can choose Singapore, China, Middle East. Returns are not as big," he said.
Official figures show Formula One has shed 200 million TV viewers globally since 2008.
In September, US firm Liberty Media announced a takeover of F1, including a new chairman and plans for greater penetration in the United States to try and right the ship.
The Sepang race, known for its tropical downpours and sauna-like conditions, is Asia's second-oldest next to the Japanese Grand Prix, which dates back to 1976.
But Singapore, which hosted the first F1 race under floodlights in 2008, quickly outstripped Sepang in terms of spectators.
Sepang, located in vast oil palm fields one hour's drive from central Kuala Lumpur, has also failed to match the lively entertainment and concerts at Singapore's downtown race, officials have said.
This year's Singapore race saw an average of 73,000 spectators attend for each of the three days of the race weekend.
State oil firm Petronas, the race's title sponsor which also backs the championship-leading Mercedes team, has been particularly hard hit by the oil price slump.
Malaysian politics are also in a volatile phase as Prime Minister Najib Razak spars with former premier Mahathir Mohamad, who is calling for Najib's ouster over a money-laundering scandal.
Mahathir's son recently quit as the Sepang circuit's chairman.
By contrast, Malaysia's MotoGP at Sepang is consistently popular and this year's race was sold out.
Sepang agreed last month to extend the MotoGP until at least 2021.