The benchmark KOSPI index declined 1.55 percent, or 32.62 points, to 2,068.69, in its sharpest daily fall since Oct. 26. The local market has also been under pressure from concerns about Sino-U.S. trade talks and a flattened U.S. yield curve.

Meng Wanzhou, the chief financial officer of Huawei and daughter of the company founder, was arrested in Vancouver and is facing extradition to the United States for alleged violation of U.S. sanctions.

Investors took the news in their stride amid uncertainties about trade talks between Washington and Beijing, Seo Sang-young, an analyst with Kiwoom Securities, said in a note to clients.

The electronic industry sub-index, to which Samsung Electronics and SK Hynix belong, lost 2.6 percent, with Samsung falling 2.3 percent and SK diving 3.2 percent.

Foreigners were net sellers of 389 billion won ($346.19 million) worth of KOSPI shares.

The junior KOSDAQ market shrank by 3.2 percent, posting its biggest single-day drop since Oct. 29.

The main index has dropped over 16 percent so far this year, pressured by a series of global events, including a prolonged Sino-U.S. trade war and a slowing global economy.

Bucking the broad selloff, automaker Hyundai Motor  jumped 2.8 percent, with investors welcoming the news of its factory plan hitting a snag.

Game giant Netmarble fell 12 percent after its newly released mobile game showed technical errors.

The won weakened in line with the global selloff in risky assets. The currency was quoted at 1,120.3 per dollar on the onshore settlement platform, 0.55 percent weaker than its previous close at 1,114.1.

In money and debt markets, December futures on three-year treasury bonds rose 0.14 points to 109.15.

The Korean 3-month Certificate of Deposit benchmark rate was quoted at 1.9 percent, while the benchmark 3-year Korean treasury bond yielded 1.846 percent, lower than the previous day's 1.90 percent.