Whereas the 1980 and 1983 coup attempts against Gayoom's presidency were not considered serious, the third coup attempt in November 1988 alarmed the international community. About eighty armed Tamil mercenaries landed on Male before dawn aboard speedboats from a freighter. Disguised as visitors, a similar number had already infiltrated Male earlier. Although the mercenaries quickly gained the nearby airport on Hulele, they failed to capture President Gayoom, who fled from house to house and asked for military intervention from India, the United States, and Britain. Indian prime minister Rajiv Gandhi immediately dispatched 1,600 troops by air to restore order in Male. Less than twelve hours later, Indian paratroopers arrived on Hulele, causing some of the mercenaries to flee toward Sri Lanka in their freighter. Those unable to reach the ship in time were quickly rounded up. Nineteen people reportedly died in the fighting, and several taken hostage also died. Three days later an Indian frigate captured the mercenaries on their freighter near the Sri Lankan coast. In July 1989, a number of the mercenaries were returned to Maldives to stand trial. Gayoom commuted the death sentences passed against them to life imprisonment.

The 1988 coup had been headed by a once prominent Maldivian businessperson named Abdullah Luthufi, who was operating a farm on Sri Lanka. Ex-president Nasir denied any involvement in the coup. In fact, in July 1990, President Gayoom officially pardoned Nasir in absentia in recognition of his role in obtaining Maldives' independence.