The boatload of 131 Sri Lankans, believed to be heading for Australia or New Zealand, was intercepted when authorities halted the modified tanker on Tuesday off the coast of southern Johor state, Malaysia's national police chief Mohamad Fuzi Harun said in a statement on Saturday.
Home Affairs Minister Peter Dutton said the ship had the potential to reach New Zealand, and warned the country was now being "marketed as a definite destination" by people smugglers.
The tanker was reportedly carrying 98 men, 24 women, four boys and five girls.
Air Vice-Marshal Stephen Osborne said the smuggling operation was "far more complex and sophisticated" than most, with a "larger number of people involved".
"This was a much larger vessel than we have seen for some time," he said.
Home Affairs minister Peter Dutton said Malaysia had done "great work" intercepting the vessel.
Asked to elaborate on the "sophistication" of the smugglers, Mr Dutton said the ship was connected with a "well known" group of smugglers who brought "experience to the task".
New Zealand is 'sugar' for smugglers: Dutton
Mr Dutton said the ship had the capability to reach New Zealand shores and warned Labor not to open up the prospect of a refugee deal with the Ardern government.
"New Zealand is now being marketed as a definite destination," he said.
He warned a pathway for refugees to settle in New Zealand could put "sugar" on the table and kickstart the people smuggling trade.
Former Australian Border Force Commissioner Roman Quaedvlieg took to social media to say New Zealand was being marketed by people smugglers as soon as Operation Sovereign Borders was established.
"There was only ever one vessel intercepted south of [Papua New Guinea] that was capable of reaching NZ physically and with an experienced crew; this one also looks like it could have," he tweeted.
New Zealand was the only country in the world where you can have a visa into Australia on arrival.
Malaysian police said they raided a fishing boat used to transport the migrants to the vessel and detained three Indonesians and four Malaysians on board.
Another five Malaysians were nabbed for suspected involving in the smuggling syndicate.
"This syndicate has been operating since mid-2017 and has international connections across Sri Lanka, Australia, New Zealand, Indonesia and Malaysia," Mr Fuzi said.
A total of 127 Sri Lankans will be charged for entering Malaysia illegally while nine Malaysians, four Indonesians and four Sri Lankans will be investigated for human smuggling, he added.
- with AAP
