Malaysia said Friday that troubled state development fund 1Malaysia Development Bhd, also known as 1MDB, will receive $1 billion from two companies controlled by the Abu Dhabi government to trim its massive debt.

Concerns about the highly indebted state company, which has racked up more than $11 billion in borrowings while facing a cash crunch, have been weighing on Malaysia's currency. Fitch Ratings has cautioned that 1MDB's financial position has become "a source of uncertainty" because of its link to the government.

The funds from International Petroleum Investment Company, or IPIC, and its subsidiary, Aabar Investments, would be used to repay a $975 million loan owed to a group of international banks, Malaysia's Second Finance Minister Ahmad Husni Hanadzlah said in a statement. Terms of the injection weren't disclosed.

"This agreement marks a significant step towards reducing 1MDB's overall debt levels" and is a crucial part of the rationalization plan, which will be implemented in full by early next year, he said.

1MDB took the $975 million loan—due for repayment by September—from a group of banks led by Deutsche Bank AG, according to people familiar with the matter.

The loan is a relatively small part of 1MDB's total liabilities of 41.9 billion ringgit (US$11.5 billion) as of March 31, 2014—the latest date for which figures are available. But it is focusing attention on how Malaysia, a major oil exporter in Asia and the world's second-largest gas producer after Qatar, will handle 1MDB's debt woes as the ringgit has lost over 8% of its value against the U.S. dollar in the past six months following the collapse in crude oil prices.

The government and officials at 1MDB have insisted previously that 1MDB's assets, valued at 51.4 billion ringgit at the end of March, far outweigh its liabilities.

IPIC had earlier guaranteed one of 1MDB's loans while Aabar Investments, Abu Dhabi's strategic investment arm, had agreed to jointly invest with 1MDB in "strategic and important high-impact projects" in the energy and real-estate sectors in Malaysia.

The troubles at 1MDB, which reports to Prime Minister Najib Razak, have also created a political storm within Mr. Najib's party. 1MDB was launched after he became premier in 2009, one of the country's numerous state firms charged with developing the economy. The still-influential former leader Mahathir Mohamad has been calling for Mr. Najib's resignation over the handling of 1MDB's affairs.

Critics, including opposition lawmaker Tony Pua, have charged that 1MDB overpaid for most of its assets, which include more than a dozen power plants, with borrowings.

In March, the Finance Ministry stepped in to provide 1MDB with an up-to 950 million ringgit loan after the company narrowly staved off a default in February on a 2 billion ringgit loan owed to a group of domestic lenders. The repayment deadline was extended twice before the banks threatened to put the company in default by Feb. 18.

1MDB will also continue to pursue options to monetize its energy unit and raise equity from third-party investors for its two key real-estate projects in the country, Mr. Husni said.

The company is exploring the listing of Edra Energy to raise more than $3 billion, as well as looking for strategic buyers for its power assets, people familiar with the matter said.

Write to Jason Ng at jason.ng@wsj.com and P.R. Venkat at venkat.pr@wsj.com

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