The benchmark Korea Composite Stock Price Index shed 34.32 points, or 1.45 percent, to 2,335.98 as of 11:15 a.m.
North Korea lobbed a ballistic missile over Japan earlier in the day in a move that could pose serious security challenges for Northeast Asia.
Reflecting the concern, market kingpin Samsung Electronics dropped 1.56 percent.
SK hynix, a major chipmaker, declined 1.77 percent, and POSCO, the No. 1 steelmaker, remained flat.
Naver, the country's top Internet portal operator, backtracked 1.66 percent, while Hyundai Motor, the No. 1 automaker, dropped 1.04 percent.
The local currency was trading at 1,126.85 won against the US dollar, down 6.75 won from the previous session's close. (Yonhap)