Dr Rowena Martin, a biochemist, and colleagues at the Australian National University in Canberra have published their study in the journal Science.
ABC Science Online quoted Martin as saying: "Chloroquine is called 'the wonder drug.... It really changed malaria treatment and it's estimated to have saved more lives than any other drug in history."
However, she added that the malaria parasite had been building resistance against the drug introduced in the 1930s and it had even become totally ineffective in some parts of the world.
She said: "Now we're actually pretty much down to a handful of drugs and those drugs are all quite expensive.
"It's been a disaster for world health."
When the malaria parasite enters the bloodstream it feeds on haemoglobin and breaks it up into amino acids.
A toxic iron waste product is formed as a result, which is stored by the parasite in its stomach after reducing it into harmless inert crystal.hloroquine does not allow the conversion of the iron waste and the toxin accumulates in the parasites stomach killing it.
An earlier research showed that a PfCRT protein helped the parasite resist Chloroquine.
Now, the Australian team has proved that PfCRT "provides an exit route for chloroquine," which does not reach the concentration required to kill the parasite.
Martin believes their findings will help in the development of more effective anti-malarial drugs.
Although, Martin said the parasite develops immunity to any drug in the long run, a combination of drugs can be used for better treatment.
She said: "It is a little inevitable the pathogen will catch up eventually.
"If you could have drugs that have opposing selective forces on the protein then you're on a winner."