D is closer to possibility and doesn't atleast contradict directly with any information.
A. The reason is provided for increase in dengue. It straightaway contradicts the given para.
B. Municipal Office's administrative efficiency has definitely not increased. To increase administrative efficiency is to improve the capability of institution to produce more desirable results. Apparently, it's not the case here. Contradiction
C. "new and effective diagnostic test (to detect dengue). It is clearly mentioned that the reason behind the increase in dengue cases is failure of control measures adopted by Municipal Authorities to control mosquito population (and not any flawed diagnostic test).
D. It doesn't contradict directly with any of the information given in paragraph. In fact there is a high probability this might happen as malaria and dengue both are caused by mosquitoes. And from that fact that mosquito population control measures has failed, we can say malaria might increase. (If it was mentioned that dengue increased because mosquitoes carrying dengue viruses has increased, then it would not be appropriate to conclude increase in malaria)