They have cordoned off the area and are negotiating with the hostage-taker.
He is reported to be armed with a hammer and a machete and to have moved the children and their teachers to the top of the two-floor building.
The Star newspaper reported that the man had told negotiators to give him a gun or he would kill the children.
He is believed to have entered the pre-school in a suburb of Muar town soon after the day had begun.
"We are still negotiating with the man to release the kindergarten children. He is holding about 30 children," local police chief Mohammad Nasir Ramli said.
The father of one of the children told the said he was informed of the incident and was told the man was armed with both a hammer and a knife.
"My five-year-old son is being held hostage. I am worried for his safety," he said.
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