The won weakened, while the benchmark bond yield rose.
The KOSPI ended down 28.18 points, or 1.41pc, at 1,970.13, snapping a five-day winning streak. For the week, the index gained 2.22pc, after two straight weekly losses.
China will establish a "sound" legal system and enforcement mechanisms to ensure national security in Hong Kong, its Premier Li Keqiang said.
The development comes a day after US President Donald Trump's warning against Beijing's attempt to gain more control over the city and US senators' comments about introducing a legislation to impose sanctions on Chinese officials.
The Hong Kong conflict triggered stock prices to reflect worries of Sino-US tensions to a large extent, DS Investment & Securities' analyst Na Jeong-hwan said, adding that investors also booked profits.
Foreigners were net sellers of 467.8 billion won ($377.93 million) worth of shares on the main board.
The won closed trading at 1,237.0 per dollar on the onshore settlement platform, 0.49pc lower than its previous close at 1,230.9.
In offshore trading, the won was quoted at 1,237.7 per dollar, down 0.4pc from the previous day, while in non-deliverable forward trading, its one-month contract was quoted at 1,238.0.
In money and debt markets, June futures on three-year treasury bonds rose 0.10 point to 112.20.
The most liquid 3-year Korean treasury bond yield fell by 1.5 basis points to 0.841pc, while the benchmark 10-year yield rose by 0.8 basis point to 1.350pc.