The Canberra man faces one count each of making a false statement about a threat to damage a Division 3 aircraft and failing to comply with cabin crew's safety instructions.
"During the flight, a male passenger allegedly became disruptive and claimed to have explosives on board," Ausralian Federal Police said in a statement on Tuesday.
The offences carry a maximum penalty of 10 years in jail and a $15,000 fine.
He is expected to appear in Downing Centre Local Court later on Tuesday.
The drama began when flight MH122 left Sydney International Airport for Kuala Lumpur just after 1pm on Monday.
It returned at 3.47pm after the man allegedly began yelling, making references to Islam and gesturing at a backpack worn on his chest.
"The commander of the flight made a decision to return to Sydney," Malaysia Airlines told AAP in a statement.
Once on the tarmac, a tense three-hour standoff began before the man was arrested by police.
Passenger Edo Kahn described the moment before the situation on board escalated.
"As the flight was taking off he started praying really loudly," he told Sydney radio 2GB on Tuesday.
"People thought maybe he was just scared of flying initially but then it just sort of got worse as things progressed and the whole situation with him not letting go of his bag."
Another man travelling with his young family said the man began saying "Allah Akbar".
"As the plane started taking off, he started saying 'Allah Akbar Allah Akbar'," he told Nine's Today show.
Other passengers posted their experiences on social media, alleging the man had been yelling at flight attendants and passengers and kneeling in the aisle of the aircraft.
The 194 passengers and five crew were evacuated from the A330 aircraft and taken to the terminal.
NSW Police Commissioner Karen Webb said the flight crew did a great job de-escalating the situation.
She also responded to questions from passengers who wanted to know why it took three hours for officers to enter the plane and arrest the man.
"I think three hours is pretty good," she told 2GB on Tuesday.
"We can never presume anything and we you don't know whether this person was acting alone or he actually had other support on the plane or outside the plane so you can't presume anything.
"In Australia ... we don't storm planes," she added while acknowledging it would have been terrifying for the passengers.
The Australian Federal Police, which helped coordinated the operation on the tarmac, said it acted once it was safe to do so.
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