The Korea Composite Stock Price Index (KOSPI) closed down 2.3 percent at 1,845.45 points, after retreating as much as 3.2 percent. It posted its largest daily percentage loss since August 24, 2015.
Declines were broad-based, with 16 out of 17 major industry sub-indices tracked by the main bourse in negative territory.
Foreign investors were net sellers for a 10th straight session, unloading a net 231.2 billion won ($190.60 million) worth of shares in the main board.
The South Korean won fell sharply as foreigners continued to sell their local stocks and currency.
The won ended local trade down 0.7 percent at 1,214.0 per dollar.