During an emergency meeting of senior officials from related ministries, the government also made a decision to prohibit local financial institutions from possessing, purchasing or investing in the virtual currencies.
Joyce Kim, co-founder of payment network Stellar, announced in a Twitter message that the South Korean government has finally decided not to ban Bitcoin exchanges, citing South Korean news source Daum.
Prices on Bithumb, South Korea's biggest Bitcoin exchange, fell almost five percent after the announcement. Bitcoin mining-related company JCH Systems Inc shares dropped 4.2 percent.
The move came amid growing concerns about possible financial damage to local investors. The virtual currency has been trading in Korea at a significant premium over prevailing global rates. "They are not institutionalised transactions".
Wednesday's meeting brought together officials from the ministries of justice, finance, and science and ICT, as well as from the Financial Services Commission, the Korea Communications Commission, the Fair Trade Commission and the National Tax Service.
About one million South Koreans, many of them small-time investors, are estimated to own Bitcoins, and demand is so high that prices for the unit are around 20 percent higher than in the United States, its biggest market. Bitcoin is trading at $16,850 on the Luxembourg-based Bitstamp exchange on Wednesday, near is lifetime high of $17,428 reached on Tuesday.
Reuters reports that while officials are not saying exactly what will be on the table at the meeting, policymakers in the country have been called upon to regulate cryptocurrency markets due to ongoing volatility, saying that trading in bitcoin specifically has created something called "bitcoin zombies".