A diarrhoea outbreak had occurred among neonates delivered in a private hospital in Kedah from 15 August to 8 September 2002 involving 27 (55.1%) cases out of a total of 49 deliveries. Thirteen of them (48.1%) were admitted to either government or private hospitals for treatnzent while fourteen of them (51.9%) were managed at home. The main presenting feature was frequent yellowish to greenish watery stool not associated with vomitting. Investigations include active case finding, environmental inspection, sampling of stool specimens, identifying causative agents and identuying human carriers. All the diarrhoea eases (100%) were noted to have received infant formula feeding while in the private hospital. Staphylococcus aureus was isolated hom the milk scoop which was used for milk preparation. Nasal swabs of four (50%) nursing personnel were also positive for Staphylococcus aureus. One of them was positive for methycilline resistant Staphylococcus aureus (MRSA). The milk and water samples showed no signuicant bacterial contamination. Stool samples of these cases were negative for Rotavirus, Vibrio sp., Salmonella sp., Shigella sp. and Entamoeba coli. This outbreak of diarrhoea was noted to have a strong association with infant formula feeding in the hospital. Breastfeeding should be continuously promoted. Baby friendly hospital initiatives in private hospital settings need to be initiated.