OBJECTIVES Acute exacerbation of chronic obstructive pulmonary disease (AECOPD) appears to be the main reason of hospitalization in COPD patients. Since substantial economic burden of COPD have not been previously studied in Malaysia, this study aimed at estimating and identifying different costs and related burden of illness in patients receiving treatment of AECOPD in a tertiary care hospital in Malaysia. METHODS A prospective follow-up study was performed in Department of Accident and Emergency and Respiratory Medicine of the hospital. Data were derived on the basis of per exacerbation episode. Relationship between direct medical costs and disease severity was analyzed using various descriptive and inferential statistical approaches. RESULTS Median actual direct medical costs and out-of-pocket costs were RM 457.68 (US$ 141.97) and RM 28.25 (US$ 8.76) per exacerbation respectively. Drug cost (41%) was the leading cost driver, followed by unit cost of treatment per bed (33.6%) and lab investigation cost (25.4%). However, food cost (44.2%) represented the largest proportion in out-of-pocket costs. More than 90% of actual direct medical costs were supported by the Government of Malaysia in the patients studied.  CONCLUSIONS Impacts of AECOPD in healthcare resources are worthy of attention. Cost information from pharmacoeconomic studies is important in decision making for healthcare professionals and policy makers in order to improve healthcare outcome and minimize costs.