The Korea Composite Stock Price Index (KOSPI) ended down 0.6 percent at 1,949.88 points.

"Fears that political unrest in Libya could spread to other countries in the Middle East, potentially causing an oil price shock, are keeping investors cautious," said Samsung Securities market analyst Kwak Joong-bo.

"We still have firm support at 1,900 points, and if the situation in Libya improves or is contained, a further recovery is possible."

Technical analysis indicated the KOSPI had solid technical support in the 1,875-1,900 point range, levels seen last December before a rally that lifted the index to a record high.

The KOSPI is trading around its 120-day moving average of 1,960 points.

Foreign investors were sellers of a net 182.7 billion won ($162.1 million) worth of stocks, offloading shares for a third consecutive session.

Crude refiners lost ground following their recent rally, with S-Oil falling 7.2 percent and SK Innovation down 1.4 percent. S-Oil had risen nearly 7 percent over the previous five sessions and SK Innovation gained about 4 percent, compared to the main index's 1 percent fall.

Analysts also said fears of a rapid hike in oil prices prompted concerns about demand for refined products.

"At the rate oil is rising, refiners may have a hard time reflecting raw material price hikes in product prices without cooling demand," said Park Dae-yong, an analyst at Hyundai Securities.

Oil prices could peak at more than $220 a barrel if Libya and Algeria both halted production as a result of spreading violence in the Middle East and North Africa, Nomura said late on Wednesday.

SK Telecom Co Ltd rose 3.2 percent after local media reported that the country's top mobile carrier planned to sell Apple Inc's iPhone 4, currently offered exclusively by smaller rival KT Corp.

"This is very good news and means the next generation of iPhones and other products such as the iPad will also be offered by SK Telecom," said NH Investment & Securities analyst Kim Hong-seek.

KT Corp lost 1.2 percent.

Top retailers eased after weak consumer sentiment data and on growing concerns that rising inflationary pressure would dent consumer appetite further.

South Korea's key consumer sentiment index hit a 21-month low in February data showed early on Thursday, while expectations for future inflation remained high, complicating the outlook for interest rate policy.

"A combination of rising consumer prices and monetary policy uncertainty does not bode well for retailers," said Dongbu Securities analyst Cha Jae-hun.

Shinsegae Co Ltd fell 2.6 percent and Lotte Shopping Co Ltd slipped 1.5 percent.

Memory chip makers continued to underperform on a weak outlook from Hewlett-Packard Co and a 2 percent fall in the Philadelphia semiconductor index.

Hynix Semiconductor Inc, the world's No.2 memory chip maker fell 2.5 percent. Trading volume for Hynix was 1.2 times the 30-day average.

But shipyards rallied, with Daewoo Shipbuilding & Marine Engineering Co Ltd advancing 2.5 percent and STX Offshore & Shipbuilding climbing 2.6 percent.

Trading turnover stood at 5.3 trillion won, compared with average daily turnover of around 7.7 trillion won in January.

The KOSPI 200 March futures index fell 2.55 points to 257.20 points. The KOSPI 200 spot index lost 1.52 points to 257.69 points.

The junior Kosdaq index declined 1.19 percent to 501.11 points.