This paper assessed the 2005 drought impact on water yield deficit at sub-watershed level of Peninsular Malaysia using satellite-based algorithm. Year 2005 has been identified as one of the warmest years by the National Oceanic and Atmospheric Administration and Malaysia has been severely affected by large synoptic drought encompassing all the states in Peninsular Malaysia. The satellite-based run off model developed by Hashim et al. (2016) and Mahmud (2012) has been adapted with appropriate data from 2000 and 2007. The use of simplistic original water balance equation was able to simulate the run-off with good agreement with in-situ (NSME = 0.3; Bias = 37%). Comparable run-off curve was achieved with actual streamflow (r = 0.771, P = 0.001). The sub-watershed scale information on severely affected catchment that unable to recover from the rainfall deficit for 12 months. Almost 78% out of the total catchments in Peninsular Malaysia were experiencing run-off deficit. Two drought waves. Were identified, one at early year, and another one in September and October. The drought recovery sign showed towards November and December. Nonetheless, some forested catchments in the west and south Peninsular Malaysia still experiencing run-off deficit. The findings of this study are useful for assessing the drought impacts to catchment productivity that incorporate spatial based dynamics.