Marine coastal fisheries are overexploited in the East Coast of Peninsular Malaysia. The Marine Protected Areas (MPAs) introduced to enable overexploited marine resources to recover coral reef ecosystems in marine islands of Malaysia. Several studies demonstrate that fisheries in MPA suffer from social and ecological stress mainly caused by increased human activities, and pollution from land-based infrastructure development. The traditional fishers face livelihood crisis due to fishing restrictions in no-take zone MPA area. This paper investigates how social-ecological factors influence the fishers to adopt livelihood diversification and secure viable pathways to reduce poverty in the small-scale fisheries in marine islands of Peninsular Malaysia. The study used a set of social economic and biophysical indicators to examine how these factors contribute to equitable and sustainable small-scale fisheries livelihoods. The results show that the social and biophysical factors contributed to the inequity in income and employment. The women members are engaged in various income generating activities that contributed to the households. Results indicate that social equity can be improved when distribution of total benefits between small-scale fisher and non-fisher households are not creating disadvantages. The findings suggest that strict restriction of fishing activities may encourage illegal fishing and will contribute negatively to coral health and fisheries resource abundance. Management of the MPAs may become more flexible with the creation of separate zones within the MPA to provide fishing access for the affected fishers. These will increase local fishers’ willingness to participate in the decision-making process and may enhance social equity and wellbeing of small-scale fishers in Malaysia.