Groundwork for the hotel in southern Johor state -- the world's fourth Legoland hotel -- began last month, developer Merlin Entertainments Groups and LL Themed Hotel said in a statement.
The hotel will be constructed out of more conventional building materials and will be built next to the Legoland theme park, which is due to open at the end of this year.
The developers said they were hoping to attract local and international travellers.
"It will bring Lego to life with imaginative theming and a host of child friendly features from low counters in the restaurant to treasure chests full of Lego in the bedrooms," the statement said.
When completed, Legoland Malaysia will be the sixth of its kind in the world after those in Denmark, Britain, California, Florida and Germany.
The 76-acre (31-hectare) park, which will offer 40 rides, shows and displays featuring the Danish toy bricks, will be one of the main attractions of Iskandar Malaysia -- a dedicated economic development zone bordering Singapore.
About 30 million Lego bricks will be used in attractions at the theme park.
Other Legoland Hotels are located in Denmark and Britain, and a third will open in California in 2013.