Online games will now be banned from giving players rewards if they log in every day, if they spend on the game for the first time or if they spend several times on the game consecutively. All are common incentive mechanisms in online games.

Besides banning reward features, games are also required to set limits on how much players can top up their digital wallets for in-game spending.

Games are also banned from offering probability-based lucky draw features to minors, and from enabling the speculation and auction of virtual gaming items.

Tencent, the world's biggest gaming company, tumbled as much as 16% at one point, while NetEase plunged as much as 25%.

"It's not necessarily the regulation itself - it's the policy risk that's too high," said Steven Leung, executive director of institutional sales at broker UOB Kay Hian in Hong Kong. "People had thought this kind of risk should have been over and had started to look at fundamentals again. It hurts confidence a lot."

Tencent Games' vice president Vigo Zhang said Tencent will not need to fundamentally change "its reasonable business model or operations" for games, adding that the company has been strictly implementing regulatory requirements.

Zhang added that minors had been spending a historically low level of money and time on Tencent's games since 2021 when minor protection became a focus for Beijing. In 2021, China set strict playtime limits for under 18s and suspended approvals of new video games for about eight months, citing gaming addiction concerns.

But the new rules included a proposal that is widely expected to be welcomed by the industry, requiring regulators to process game approvals within 60 days. Meanwhile, Chinese regulators announced on the same day licences for 40 new imported games for domestic releases, seen as a signal of Beijing's willingness to allow more games in the country, despite the draft rules on game spending.