The demonstration underscored the delicate nature of Obama's trip to Muslim-majority Malaysia, which will make him the first sitting US president to visit in nearly half a century, a period marked by mutual distrust.
The protesters marched to the embassy in Kuala Lumpur from a nearby mosque after Friday afternoon prayers, shouting "God is great" and "Obama is the enemy of the Prophet Muhammad [PBUH]."
They also bore placards and banners saying: "US is axis of evil" and handed out leaflets saying "Reject Obama, World's No. 1 Terrorist."
Malaysia has opposed US wars in the Middle East and supports the establishment of a Palestinian state.
Obama embarks on a week-long Asia tour next week that will bring him to Malaysia April 26-28.
The last US president, who visited Malaysia, was Lyndon Johnson in 1966.
US-Malaysia relations have been marked by bitterness in recent decades, particularly during the tenure of former authoritarian premier Mahathir Mohamad from 1981-2003, who was harshly critical of US policy around the world.
Current Prime Minister Najib Razak has taken a more friendly tone toward the West, but he is restrained by conservative elements in his Muslim-dominated government.
Obama will also visit South Korea, Japan and the Philippines at a time of unease around the region over China's rise.
NTJ/MB