Schumacher, 41, pulled out of the race on the 10th lap after telling his team in the pit that “something has broken”. It later emerged that a wheel nut had come loose.
At the time, Schumacher was in sixth place, having advanced from his starting position of eighth.
The elimination continues an underwhelming start for the former world champion, who has won a record seven world titles.
After stirring the sport into a frenzy by emerging from retirement to join the Mercedes GP team, Schumacher finished sixth in the season opener in Bahrain and 10th in Australia.
German Sebastian Vettel from the Red Bull team went on to win the race at the Sepang International Circuit outside Kuala Lumpur, ahead of team mate Mark Webber with Nico Rosberg from Mercedes GP coming in third.