Muslim women will have to wear headscarves and loose dresses to office, they said, adding employers risked losing their business licences and face fines if the staff flouted the rules.
"The general policy is that non-Muslim women should dress decently," said Hadi Awang, chief minister of the north-eastern state and leader of the Islamic party PAS.
PAS or Parti Islam se-Malaysia (PAS) is the main opposition party in Malaysia where general elections are due this year.
"The PAS government will not tolerate females, including those from different religions, wearing such clothes during working hours," one state official said.
It wasn't immediately known when the ban would come into force.
Women's groups railed against the planned ban.
"It's clearly an encroachment of the private space of women living in Terengganu," said Cynthia Gabriel, a women's rights advocate for the Kuala Lumpur-based Voice of Malaysia. "It's certainly a step backward," she added.