90 per cent of Kuala Lumpur's budget hotels, the Alor Star City Council has found, are fire traps.
Many such places have also become dens for immoral activities, including gambling and prostitution, the council found.
The findings come as the council checked about 100 budget lodgings, including rooms-for-rent in housing areas, budget hotels and homestays, after public complaints on the proliferation of "instant" guest houses and homestays in many parts of the city.
Complaints were also made regarding some of the outlets that recruited foreigners, especially women, as workers maid public concern that some of them might be hired as sex workers.
Azizan Md Zain, Council licensing division head, confirmed that most of the budget hotels inspected were established illegally.
He said that action against operators who hired illegal foreign workers had also been taken.
He said anyone flouting the Kota Setar Municipal Council Subsidiary Legislation on Guesthouses Monitoring, 1988, faced a fine of RM2,000 or a year's imprisonment or both.
Repeat offenders also face a daily maximum compound of RM200.
Kedah Working Committee Against Immoral Activities coordinator Kamaruddin Kassim said the state government should step up efforts to shut illegal lodging facilities.
He said the problem was serious due to lax enforcement.
"We have all the laws to check the activities but we lack the willpower to do so," the New Straits Times Online quoted him as saying.
"The state government should coordinate a joint effort comprising the police, Islamic religious department and the various local authorities to check the problem," he added.