The Federal Court heard objections by lawyers representing an ethnic Indian couple fighting each other for custody of their two children and adjourned for two weeks before hearing the case.
A Hindu woman, Shamala Sathiyaseelan, won temporary custody of her two children in 2004 following her husband's conversion to Islam. She is seeking full custody and a declaration that it is illegal under Malaysia's constitution for a parent to convert a minor to Islam without the other's consent.
Malaysia's dual-track legal system where Muslims fall under Islamic family laws while non-Muslims come under civil laws has led to overlaps and unresolved religious disputes that have fueled minority unhappiness and raised political tensions.
"This is a fundamental constitutional question being brought up for the first time, and a lot of other cases will abide by the ruling on this case," Shamala's lawyer, Cyrus Das, told reporters.
Apart from inter-religious custody battles, an ongoing legal battle is pending in court over the right of Christians to use the word "Allah" to describe God, which led a church being razed and other religious institutions attacked.
The spike in ethno-religious tensions in the past few years has started to worry investors at a time when Prime Minister Najib Razak has pledged political and economic reforms to woo investment.
The uncertainties and heightened political tensions after the government's historic polls defeats in the last general election in 2008 have helped dent foreign investment.
Net portfolio and direct investment outflows reached $61 billion in 2008 and 2009 according to official data.
Unhappiness with the government over religious and ethnic issues by minorities who make up 40 percent of the country's 28 million population was among the factors that led to the ruling coalition's historic poll losses in 2008.
Najib's National Front coalition, which has ruled this Southeast Asian country uninterrupted since independence from Britain in 1957, lost control in five of 13 states and its once iron-clad two thirds majority.
Since taking office in April last year, Najib has reached out to minorities by introducing a "1Malaysia" policy to foster greater inclusiveness and set up an inter-religious committee to foster dialogue.
The cabinet in April last year issued a directive banning the unilateral religious conversion of minors by one parent but its implementation is still uncertain.
The ruling coalition won its first parliamentary by-election recently after a string of losses and is heading to another by-election next week in the Borneo state of Sarawak, which has a large Christian population.
But the by-election comes at a time when major church there has a pending court case against the government over its right to use the word "Allah.”
Observers say a failure by Najib to resolve the disputes could jeopardise his efforts to deliver a strong performance for the coalition in the coming general election due by 2013 but which could be called as early as next year.
"There is a huge crack in the nation due to the overlaps (in jurisdiction between Islamic and civil courts) and the rolling back of rights," said Ivy Josiah, executive director of rights group Women's Aid Organization (WAO).
"If unresolved, people will have no choice but to go to the ballot box," said Josiah, whose WAO is one of five rights groups granted observer status by the federal court on the Shamala case.
