South Korea's benchmark KOSPI index suffered a massive selloff on Tuesday, plunging nearly 10 per cent as overseas investors rushed to offload chipmaker stocks following regulatory signals that the sector's rally may have become overheated.

The KOSPI closed down 910.71 points or 9.99 per cent at 8,203.84, marking its steepest single-day decline since March 4. The sharp fall also triggered an automatic 20-minute trading halt across the bourse during afternoon trade.

The selloff was led by heavyweight chipmakers Samsung Electronics Co and SK Hynix, whose shares tumbled 12.31 per cent and 12.47 per cent, respectively. The steep losses wiped out billions of dollars in market value and weighed heavily on the broader market.

The benchmark has become increasingly concentrated in the semiconductor sector, with Samsung Electronics and SK Hynix now accounting for more than half of the index's total market capitalisation (m-cap).

Investor sentiment turned cautious after comments from South Korea's market regulator. On Monday, Lee Chan-jin, head of the country's market watchdog, said authorities may have moved too quickly in approving leveraged funds linked to some of the nation's leading chip stocks. These products were introduced last month and are believed to have contributed to heightened market volatility.

Regulators have also recently warned retail investors about excessive leverage in the stock market. Margin debt, or money borrowed to purchase shares, climbed to a record high in June, raising concerns over speculative activity.

Despite Tuesday's sharp correction, KOSPI remains up 90.36 per cent on a year-to-date (YTD) basis.

The weakness in South Korea's index spilled over to other Asian markets. Japan's Nikkei 225 declined 3.55 per cent, Hong Kong's Hang Seng index fell 1.82 per cent, and China's Shanghai Composite Index slipped 1.37 per cent.

Back home, Indian equity benchmarks also witnessed a sharp decline during the session, mirroring the risk-off sentiment seen across Asian markets.

(With inputs from Reuters)