The Environmental Investigation Agency (EIA) said the problem with a trade pact, currently being discussed by the two nations, centred on the illegally-sourced wood used to make some Malaysia timber products.
It said a pact could create more US demand for Malaysian timber exports and therefore exacerbate illegal logging.
EIA claims more than a third of timber exports come from illegally-felled logs, mostly from Indonesia.
The group wants to see any new free trade agreement include tougher bilateral enforcement of the trade in illegal wood products.
