The benchmark Korea Composite Stock Price Index (KOSPI) dived 101.48 points, or 4.76 percent, to settle at 2,030.82. Trading volume stood at 1.06 billion shares worth 18 trillion won (14.8 billion U.S. dollars).
It marked the biggest daily decline since March 23 when fears peaked here over the coronavirus pandemic.
Concerns resurfaced about the second wave of the COVID-19 outbreak, driving foreign and institutional investors to dump local stocks.
Market watchers said geopolitical risks weighed down on investors' sentiment in addition to the pandemic fear.
All communication lines between South Korea and the Democratic People's Republic of Korea (DPRK) were severed last week because of the DPRK's protest at anti-Pyongyang propaganda leaflets sent by defectors across the inter-Korean border.
Most of blue-chip stocks lost ground. Leading chemical firm LG Chem plunged 7.4 percent, and the biggest carmaker Hyundai Motor plummeted 6.3 percent. The No.1 auto parts manufacturer Hyundai Mobis nosedived 9.2 percent.
Samsung BioLogics, the biopharmaceutical unit of Samsung Group, added 0.37 percent, and Samsung C&T, the de-facto holding company of Samsung, advanced 3.2 percent.
The tech-savvy KOSDAQ retreated 52.91 points, or 7.09 percent, to close at 693.15. It was the biggest daily fall since March 19.
The local currency finished at 1,216.0 won versus the greenback, down 12.2 won from the previous close.
Bond prices ended lower. Yields on the liquid three-year treasury notes rose 2.0 basis points to 0.861 percent, and the return on the 10-year government bonds gained 3.6 basis points to 1.424 percent.
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