The benchmark Korea Composite Stock Price Index lost 26.34 points, or 1.1 percent, to 2,368.39.
Ryu Yong-seok, a market analyst at KB Securities Co., said tensions between North Korea and the United States weighed on the main index.
Foreign investors sold over 259 billion won ($228 million) worth of stocks, which Ryu said is a signal that they are wary of escalating tensions on the Korean Peninsula.
North Korea and the United States have traded bellicose rhetoric after the United Nations Security Council further tightened sanctions on North Korea for its two tests last month of intercontinental ballistic missiles.
On Wednesday, North Korea's military said it is considering missile strikes near the US territory of Guam, warning that it is ready to stage an all-out war if Washington launches a preventive war against it.
The North's threat came hours after US President Donald Trump warned that any threat by North Korea to the US will be met with "fire and fury."
Trump's top security adviser H.R. McMaster earlier told MSNBC that the US is preparing for a "preventive war" with North Korea among other options on the table to deal with Pyongyang's nuclear and missile threats.
Kim Ye-eun, an analyst at Cape Investment & Securities, said North Korea risks are to blame for the decline in the main index.
Most large-cap stocks were mixed across the board.
Top automaker Hyundai Motor was up 1.39 percent to 146,000 won, and top steelmaker POSCO advanced 0.59 percent to 339,500 won.
Meanwhile, market bellwether Samsung Electronics Co. backtracked 3.02 percent to 2,314,000 won, and No. 2 chipmaker SK hynix Inc. was down 3.17 percent to 64,200 won.
The local currency was trading at 1,135.20 won against the US dollar, down 10.10 won from the previous session's close.
Bond prices, which move inversely to yields, closed lower. The yield on three-year Treasurys rose 2.8 basis points to 1.833 percent and the return on benchmark five-year government bonds gained 3.2 basis points to 2.038 percent. (Yonhap)