In a match lasting close to two hours, Sania went down 6-3, 4-6, 3-6 as she continued her poor run on the circuit.
The Hyderabadi ace, who recently broke off her engagement to childhood friend Sohrab Mirza, lost her way after making a fine start.
Her serve proved to be a complete let down as she conceded break points to her rival.
In the deciding third set, Sania was trailing 4-5 when she handed two match points to Malek, who grabbed the opportunity with both hands to knock out the Indian.