Final answer:
Malacca (Melaka) is the small town on the western coast of the Malay Peninsula where an Islamic state began to form in around 1400. Parameswara, who founded the city, converted to Islam and established close relationships with other Muslim states.
Step-by-step explanation:
The small town on the western coast of the Malay Peninsula where an Islamic state began to form in around 1400 is Malacca (Melaka). This city, founded by Parameswara and his followers, became a thriving trading port, attracting merchants from Arab, Persian, Indian, and Chinese origins. Parameswara converted to Islam and changed his name to Iskander, establishing close relationships with other Muslim states in the region.