Foreign investors sold local stocks and bonds worth $1.33 billion and $1.91 billion, respectively, the Bank of Korea said.
It marked the first sell-off by foreign investors since November 2016, when foreign investors offloaded South Korean stocks and bonds worth $490 million.
Tensions spiked on the Korean Peninsula in August as North Korea announced a plan to launch ballistic missiles toward the US Pacific territory of Guam.
In response, US President Donald Trump said the US military is "locked and loaded" to deal with North Korea's provocations and North Korea would be met with "fire and fury" if it continued to threaten Washington.
In late August, North Korea launched an intermediate-range ballistic missile over the northern territory of Japan.
Meanwhile, volatility in South Korea's currency markets eased in August from a month earlier, despite increased volatility in the global financial markets over geopolitical risks.
The session-over-session changes in the dollar-won exchange rates averaged 0.34 percent in August, compared with 0.42 percent a month earlier, the BOK said.
"The won has fallen against the dollar since August due to geopolitical risks" over North Korea's missile and nuclear programs, the BOK said.
The Korean won posted 4.8 won in daily value changes against the US dollar in August, down from 5.2 won a month earlier, it said.
The won finished at 1,131.9 against the greenback on Sept. 11, compared with 1,127.8 won at the end of August, the BOK said.
The credit default swaps premium for foreign exchange stabilization bonds came to 62 basis points in August, up from 58 basis points a month earlier, the BOK said. (Yonhap)