The benchmark KOSPI fell 3.59 percent or 210.29 points to close at 5,648.79.
Foreign investors sold 1.52 trillion won (US$1.13 billion) worth of shares, while institutions unloaded 511.3 billion won. Retail investors bought 1.66 trillion won but failed to prevent the decline.
The selloff followed a 2.24 percent rebound the previous day, as renewed concerns over how major U.S. technology companies would finance their expanding AI infrastructure weighed on investor sentiment.
Oracle announced plans to raise $20 billion through stock and bond offerings, split evenly between equity and debt, to support its AI and cloud infrastructure expansion.
Meta was also reportedly considering issuing at least $20 billion in dollar- and euro-denominated bonds, while Alphabet was pursuing a multibillion-euro bond offering.
The financing plans raised fresh questions over whether massive investments in AI data centers would generate sufficient returns to justify the growing debt burden.
Concerns intensified after Anthropic, the developer of the Claude AI chatbot, disclosed approximately $895 billion in committed computing and infrastructure spending in an amended regulatory filing.
Despite rapid revenue growth, the company's enormous spending commitments highlighted the financial demands of expanding AI infrastructure.
The concerns spread to South Korea's semiconductor sector, which has benefited from strong demand for memory chips used in AI systems.
Samsung Electronics fell 4.2 percent to 219,500 won, while SK hynix dropped 5.2 percent to 1,396,000 won, slipping below the 1.4 million won mark.
SK Square, a major shareholder in SK hynix, declined 5.6 percent to 897,000 won.
Samsung Electro-Mechanics lost 7 percent to 1,110,000 won, while Daeduck Electronics plunged 13.4 percent to 100,900 won, reflecting broader weakness across semiconductor-related components and equipment stocks.
Battery shares also came under pressure, with Samsung SDI falling 8.6 percent to 491,000 won.
Lee Kyung-min, an analyst at Daishin Securities, said repeated bond issuance announcements by major U.S. technology companies had revived concerns over AI financing and weakened investor sentiment across the AI supply chain.
Uncertainty surrounding the U.S. midterm elections also weighed on risk appetite, as investors assessed potential changes to fiscal, trade and technology policies.
Despite the broad market decline, airline-related shares posted strong gains.
Hanjin KAL, the holding company of Hanjin Group, surged 30 percent to 175,200 won, reaching the daily upper price limit amid speculation over a potential shareholder contest involving chairman Cho Won-tae and Hoban Group.
The rally followed reports that Hoban had increased its stake in Hanjin KAL, prompting renewed attention to the group's ownership structure.
Cho disclosed plans Monday to acquire an additional 325,000 common shares worth 37.05 billion won through off-hours transactions scheduled between Dec. 3 and Jan. 1. If completed, the purchases would raise Cho's personal stake from 5.75 percent to 6.23 percent, potentially strengthening his position as Hoban expands its holdings.
Korean Air gained 1.92 percent to 29,150 won, while low-cost carrier Jin Air edged up 0.5 percent to 5,600 won.
Airline shares led sector gains, rising 14.7 percent, largely driven by Hanjin KAL's sharp advance.
Elsewhere on the KOSPI, Samsung Biologics rose 1.2 percent to 1,439,000 won, while Kia edged up 0.1 percent to 96,000 won.
HD Korea Shipbuilding & Offshore Engineering gained 2.4 percent to 255,000 won, while DB HiTek advanced 2.1 percent to 96,500 won and Samsung Heavy Industries added 0.7 percent to 17,240 won.
KT rose 1.7 percent to 46,500 won, providing some support to telecommunications shares.
The tech-heavy KOSDAQ fell 4.08 percent, or 29.97 points, to close at 704.39, narrowly holding above the 700-point mark after trading between 702.34 and 723.92.
Foreign investors sold 74.7 billion won worth of shares, while institutions unloaded 234.5 billion won. Retail investors bought 319.7 billion won.
Semiconductor equipment shares were among the biggest decliners, extending losses across the broader technology sector.
Jusung Engineering fell 7.8 percent to 154,900 won, while cybersecurity company AhnLab dropped 4 percent to 111,700 won.
Intellivix slipped 2.4 percent to 22,050 won, while Wonik Holdings edged down 0.5 percent to 32,200 won.
Other actively traded shares suffered steeper losses, with Revelup plunging 24.7 percent to 14,270 won and Younggwang falling 27.5 percent to 15,560 won.
By contrast, Genians gained 5.3 percent to 28,900 won, while T&E Korea jumped 13.8 percent to 19,560 won.
Elsewhere in Asia, China's Shanghai Composite fell 0.8 percent to 3,608.1, while Hong Kong's Hang Seng Index rose 0.3 percent to 23,452.8.
Japanese financial markets were closed for the Culture Day public holiday.
The South Korean won strengthened against the U.S. dollar, with the exchange rate standing at 1,341.2 won per dollar.
Oil prices rebounded after steep losses in the previous session, as investors weighed diplomatic progress between the United States and Iran against the risk of renewed military tensions.
West Texas Intermediate crude gained 2.13 percent to $98.51 a barrel, while Brent crude rose 2.12 percent to $107 a barrel.
The recovery followed a sharp decline Monday after Iranian officials signaled progress in negotiations mediated by Qatar.
Iranian President Masoud Pezeshkian said his government had received greater authority to pursue peace talks, while U.S. President Donald Trump also indicated that negotiations had made progress.
However, uncertainty over the outcome of the talks and the possibility of further military action continued to keep energy markets volatile.
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