BACKGROUND: Type 2 diabetes mellitus (T2DM) is a chronic disease that consumes a large amount of health-care resources. It is essential to estimate the cost of managing T2DM to the society, especially in developing countries. Economic studies of T2DM as a primary diagnosis would assist efficient health-care resource allocation for disease management. OBJECTIVE: This study aims to measure the economic burden of T2DM as the primary diagnosis for hospitalization from provider's perspective. METHODS: A retrospective prevalence-based costing study was conducted in a teaching hospital. Financial administrative data and inpatient medical records of patients with primary diagnosis (International Classification Disease-10 coding) E11 in the year 2013 were included in costing analysis. Average cost per episode of care and average cost per outpatient visit were calculated using gross direct costing allocation approach. RESULTS: Total admissions for T2DM as primary diagnosis in 2013 were 217 with total outpatient visits of 3214. Average cost per episode of care was RM 901.51 (US$ 286.20) and the average cost per outpatient visit was RM 641.02 (US$ 203.50) from provider's perspective. The annual economic burden of T2DM for hospitalized patients was RM 195,627.67 (US$ 62,104) and RM 2,061,520.32 (US$ 654,450) for those being treated in the outpatient setting. CONCLUSIONS: Economic burden to provide T2DM care was higher in the outpatient setting due to the higher utilization of the health-care service in this setting. Thus, more focus toward improving T2DM outpatient service could mitigate further increase in health-care cost from this chronic disease.