The benchmark Korea Composite Stock Price Index dropped 28.04 points, or 1.19 percent, to 2,329.65. Trade volume was low at 244 million shares worth 4.32 trillion won ($3.81 billion), with losers far outnumbering gainers at 715 to 124.
On Sunday, North Korea claimed it had successfully conducted a test of a hydrogen bomb that can be mounted on an intercontinental ballistic missile.
Shortly after the announcement, US President Donald Trump and Japanese Prime Minister Shinzo Abe agreed to step up pressure on North Korea.
"Since the launch of ICBMs by Pyongyang, the South Korean and global financial markets have been suffering fluctuations," said Lee Kyung-min, a researcher at Daishin Securities Co.
"The latest provocation will also weigh down on investors' sentiment, placing the local stock market under selling pressure," Lee added.
Foreigners bought a net 4.4 billion won, while individuals offloaded a net 343.7 billion won. Institutions bought a net 316 billion won.
Shares lost ground across the board, with top cap Samsung Electronics moving down 0.95 percent to 2,302,000 won and flat panel maker LG Display losing 1.63 percent to 30,250 won. Chipmaker SK hynix shed 0.87 percent to 68,100 won.
Carmakers finished bearish, with industry leader Hyundai Motor falling 2.1 percent to 140,000 won and its sister Kia Motors losing 1.83 percent to 34,900 won. Top auto parts maker Hyundai Mobis declined 1.04 percent to 238,500 won.
Top mobile carrier SK Telecom moved down 1.59 percent to 248,000 won, and KT also lost 3.53 percent to 30,050 won. LG Uplus shed 2.44 percent to 14,000 won.
Chemical shares were also losers, with top cosmetics maker AmorePacific falling 0.69 percent to 287,000 won and LG Household & Health Care decreasing 1.36 percent to 940,000 won. Top chemical firm LG Chem lost 0.8 percent to 370,000 won.
The local currency closed at 1,133.00 won against the US dollar, down 10.20 won from the previous session's close.
Bond prices, which move inversely to yields, ended lower. The yield on three-year Treasurys advanced 3.5 basis points at 1.782 percent and the return on the benchmark five-year government bonds also gained 3.5 basis points to 2.001 percent. (Yonhap)