Despite efforts in improving medication safety, medication administration errors are still common, resulting in significant clinical and economic impact. Studies conducted using a valid and reliable tool to assess clinical impact are lacking, and to the best of our knowledge, studies evaluating the economic impact of medication administration errors among neonates are not yet available. Therefore, this study aimed to determine the potential clinical and economic impact of medication administration errors in neonatal intensive care units and identify the factors associated with these errors. A national level, multi centre, prospective direct observational study was conducted in the neonatal intensive care units of five Malaysian public hospitals. The nurses preparing and administering the medications were directly observed. After the data were collected, two clinical pharmacists conducted independent assessments to identify errors. An expert panel of healthcare professionals assessed each medication administration error for its potential clinical and economic outcome. A validated visual analogue scale was used to ascertain the potential clinical outcome. The mean severity index for each error was subsequently calculated. The potential economic impact of each error was determined by averaging each expert's input. Multinomial logistic regression and multiple linear regression were used to identify factors associated with the severity and cost of the errors, respectively. A total of 1,018 out of 1,288 (79.0%) errors were found to be potentially moderate in severity, while only 30 (2.3%) were found to be potentially severe. The potential economic impact was estimated at USD 27,452.10. Factors significantly associated with severe medication administration errors were the medications administered intravenously, the presence of high-alert medications, unavailability of a protocol, and younger neonates. Moreover, factors significantly associated with moderately severe errors were intravenous medication administration, younger neonates, and an increased number of medications administered. In the multiple linear regression analysis, the independent variables found to be significantly associated with cost were the intravenous route of administration and the use of high-alert medications. In conclusion, medication administration errors were judged to be mainly moderate in severity costing USD 14.04 (2.22-22.53) per error. This study revealed important insights and highlights the need to implement effective error reducing strategies to improve patient safety among neonates in the neonatal intensive care unit.