The benchmark Korea Composite Stock Price Index (KOSPI) dived 85.45 points, or 4.19 percent, to settle at 1,954.77. Trading volume stood at 6 million shares worth 8.7 trillion won (7.2 billion U.S. dollars).
It was the lowest close in about six months as foreign investors went on a selling spree.
Foreigners dumped a net 1.3 trillion won (1.1 billion U.S. dollars) worth of local stocks, logging the biggest foreign daily selling since the main bourse began compiling the data in 1999.
Institutional investors sold shares, but retail investors were net buyers to limit the KOSPI's further decline.
Investors fled to safer assets such as bonds and the U.S. currency. South Korea's currency finished at 1,204.2 won against the greenback, down 11.9 won from the previous close.
Bond prices ended higher. Yields on the liquid three-year treasury notes dipped 4.0 basis point to 1.038 percent, and the return on the 10-year government bonds shrank 8.4 basis points to 1.286 percent.
Large-cap stocks lost ground. Market bellwether Samsung Electronics dropped 4.1 percent, and memory chip giant SK Hynix plunged 6.2 percent. Leading chemical firm LG Chem and the most-used search engine Naver diminished more than 6 percent.
The biggest carmaker Hyundai Motor plummeted 5.9 percent, and biopharmaceutical behemoth Celltrion declined 2 percent.
The tech-savvy KOSDAQ sank 28.12 points, or 4.38 percent, to close at 614.60. It marked the lowest close in about 10 days.
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