Police released almost all the men by late on Sunday, but Indian diplomats expressed outrage over their treatment.
"Computer specialists are the most sought after Indian professional community, wanted in the United States, the United Kingdom and Germany, and they've been asked by Malaysian companies to work here and they are treated like this," Indian High Commissioner Veena Sikri told Reuters.
Sikri said she had registered a verbal protest with the Malaysian government, and had written asking for an explanation.
The men were taken into custody after a dawn raid on an apartment block in a predominantly ethnic Indian neighbourhood, where a large number of information technology professionals from the southern Indian state of Andhra Pradesh were staying.
Close to a hundred were immediately released, but the rest, some in their bed clothes, were taken to a nearby police station.
There they were handcuffed and held in a vehicle shed for several hours despite holding valid passports and visas. Sikri said her officials were initially denied consular access.
There were some complaints of rough treatment of a few taken to a detention centre. Indian diplomats also showed Reuters pages from several passports returned by the police with photographs scratched out and computer readable data on the visa erased.
In New Delhi, Malaysia's Ambassador Choo Siew Kioh was summoned to the foreign office and the matter was taken up "very strongly", Indian foreign ministry spokesman Navtej Sarna said.
"Such unacceptable action by Malaysian authorities cannot but adversely affect bilateral relations," Sarna told reporters, referring to traditionally friendly ties.
"It would also badly dent Malaysia's image as a destination for IT professionals and as a country which is keen to encourage foreign participation in IT and other sectors," he said.
Over a dozen men were still being held, due to alleged passport irregularities, a police official told Reuters.
"These were educated software professionals being treated as common petty criminals," said Arshad Khan, country manager of World Wide Info System, an employer of a few of the workers.
Short of skilled IT workers, Malaysia has sought to tap India's computer-savvy labour pool to help its Multi-media Super Corridor (MSC) hi-tech zone take off.
Richer than most of its neighbours, and with a relatively small population of 24 million, Malaysia depends on imported labour in several sectors, but remains fearful it could be overrun by immigrant workers.
Last year, Malaysia threw out hundreds of thousands of illegal workers from Indonesia and Philippines, leading to labour shortages, notably in the construction sector.