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South Korea's finance ministry and financial watchdog shifted into emergency mode Monday in a bid to minimize fallout on local markets from North Korean leader Kim Jong-il's death, officials said.

The Ministry of Strategy and Finance and the Financial Services Commission (FSC) set up 24-hour emergency teams to respond quickly to potential developments that could arise and fuel public and market concerns, they said.

Because of the importance of international cooperation, contact channels have been opened with countries including the United States, Japan and members of the G20's systemically important industrialized and developing economies, the ministry said, adding close tabs are being kept on all developments that could impact the economy.

"Seoul is monitoring all changes, carefully analyzing their implications and what appropriate actions are needed to cope with the situation," Finance Minister Bahk Jae-wan said in a press release issued after the announcement of Kim Jong-il's death at noon.

He added that real-time monitoring of both overseas and domestic economic developments are underway, with the government reviewing its contingency plan set up to cope with any emergency situations occurring in North Korea.

"The plan currently under review and has not been put in place since from an economic standpoint, the current situation is not yet a crisis," he said.

South Korea's top economic policymaker said the government plans to take active steps to deal with any changes that may occur, adding Seoul will strengthen its ties with international credit rating agencies to prevent concern about a drop in overseas credibility.

Bahk urged the public to continue ordinary economic activities, saying they should not be affected in any way by the death, and that there is no real reason to horde emergency goods and food.

"There have been many past cases involving escalation of risks associated with North Korea, but all have had a limited impact, so there is no reason to be overly concerned," the policymaker claimed, stressing that Seoul had prepared for such contingencies.

He added, however, that the latest development could raise geopolitical uncertainties on the Korean Peninsula and make it difficult to determine future developments.

The remarks come as both South Korea's benchmark KOSPI plunged and the foreign exchange market was rocked by the announcement of Kim's death.

The stock index dropped 63.03 points from the previous day to close at 1,776.93 points, while the local currency tumbled to 1,174.8 won against the U.S. dollar from 1,158.6 won on Friday.

Kim's death is widely expected to fuel market uncertainties and pose challenges for South Korea, which is still struggling with global economic woes.

South Korea's economy, the fourth-largest in Asia, was projected to grow 3.8 percent this year, down from 6.2 percent growth tallied in 2010.

The Financial Services Commission (FSC) said it also established a response team that will help contain panic that could arise in the market. It will operate around the clock and respond quickly to any economic and financial changes that may occur.

FSC Chairman Kim Seok-dong said problems in North Korea could potentially pose serious challenges for South Korea's economy and financial sector.

"Every effort will be made to review the financial market and carefully monitor the local stock, bonds and movement of foreign reserves," he stressed, adding Seoul will examine the outflow or inflow of foreign capital.

Kim said that the FSC must be on guard for liquidity shortfalls that could hurt businesses and will make certain that local financial institutions continue to provide funds.

"The government and financial regulators must direct a calm but firm message to the markets to ease jitters. They must also call on the general populace to contain overreaction to the death, even though there is no immediate evidence that the economy will be seriously damaged by the North Korean leaders death," he said. The chairman hinted, however, that the financial regulator could take stringent emergency action to counter potential market volatility if the need arises.

Bank of Korea (BOK) Gov. Kim Choong-soo also said at a hastily convened meeting that every effort must be made to check changes in the market and prevent uncertainties from disrupting the economy.

He stressed that the BOK will work with other central banks to exchange market-related information and implement contingency plans in accordance with actions being taken by the government.

Local economists, market watchers and policymakers said that South Korea may experience prolonged uncertainties related to consumer prices, stock prices and foreign exchange rates.

"There is no way to predict how the overall economy will respond to the death," a local analyst said, while predicting that fallout from the death may last for some time.

Others said that if there is a power struggle in North Korea, it could affect South Korea's sovereign credit rating by escalating geopolitical risks on the Korean Peninsula.

Such a development is feared to lead to financial sector uncertainties that could negatively impact both consumer and business sentiment.

"The death will definitely shock the economy in the short term, but unlike other events including the nuclear tests (in 2006 and 2009) and armed confrontation between the two Koreas that had limited long term effects, the latest incident may cause problems for some time because of the power succession issue," said a government official, who spoke on condition of anonymity.

He also added, however, that there may not be a reason to abruptly change Seoul's economic policy stance at present that is geared up to handle the ongoing eurozone crisis.