Head coach Colin Batch said despite a slow start it was a gutsy effort to hang tough and come back to force a result in shoot-out.
"It wasn't such a good start from us tonight, we were well below our level and it was disappointing to allow them two quick goals," he said.
"Full credit to our team though to put together a mature and calm performance playing from behind.
"We have grown significantly during the tournament and we are creating a belief within this group that we can handle these high pressure situations."
The hosts opened the scoring in the seventh minute after Ramadan Rosli made the most of some loose defensive coverage to slip a shot past Manchester.
Four minutes later Malaysia doubled the lead when Fitri Saari found himself in the circle with plenty of clear space to flick over the diving keeper.
Finally the Black Sticks got things rolling in the 27th minute when Phillips scored his first international goal by putting a screamer into the top of the net off his reverse stick.
The Kiwis earned their first penalty corner of the match in the 43rd minute and capitalised on the opportunity with Russell putting his flick over the goalkeeper's head to level the score at 2-2.
But from the restart the Malaysians immediately responded and grabbed the lead back once more thanks to a nice finish from Sharil Saabah at close range.
With two minutes on the clock the Black Sticks won a penalty corner which saw Russell pick up his double with flick that was too strong to keep out.
New Zealand had two more penalty corners in the final minute but were unable to find the game winner, sending the match to a shoot-out.
