Attorney-General Tommy Thomas said the Admiralty Court on Wednesday approved the sale of the Equanimity, which has lavish amenities including a helicopter landing pad, plunge pool, gymnasium and a cinema.
Genting will pay up by end of April, making it the "highest recovery to date" for the government from the scandal, he said in a statement.
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U.S. investigators say the $250 million yacht was bought with funds diverted from the 1MDB by fugitive Malaysian financier Low Taek Jho, better known as Jho Low, believed to be a key figure in the theft and international laundering of $4.5 billion from 1MDB.
The yacht was seized by Indonesian authorities off Bali island last year in cooperation with the FBI and subsequently handed back to Malaysia. The U.S. Justice Department, one of several foreign agencies investigating the 1MDB scandal, had listed the yacht among the assets it could seize and sell to recover stolen funds.
Former Prime Minister Najib Razak set up 1MDB when he took power in 2009 but it accumulated billions in debts. The 1MDB fiasco led to Najib's shocking electoral defeat last May and ushered in the country's first change of power since independence from Britain in 1957.
Najib and his wife have been charged with multiple counts of corruption and money-laundering and both have pleaded not guilty. Najib's first corruption trial is due to begin later Wednesday.
Thomas said the Genting offer was the highest since the government opened bids for the 300-foot (91 ½- meter) yacht. Although the estimated market value was $130 million, he said there was a saving of $4.4 million in agency commission as the sale was negotiated directly with the government.
"This judicial sale at $126 million is historic by any measure. It records a high-water mark for our judicial system in ensuring that market value is secured for a vessel sold through the processes of court without any discount," he said.
The Equanimity was built in 2014 by the Dutch yacht manufacturer Oceano, which received detailed instructions from Low about its outfitting, according to the Justice Department's asset recovery case.
The new government has said corruption by Najib's administration caused national debt to pile up and that the yacht was being sold to recover as much money as possible.
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