The quake, which was felt across much of the country including in the capital Seoul, struck at the shallow depth of nine kilometres (six miles) near the southeastern industrial city of Pohang at around 2:30 pm (0530 GMT), the Korea Meteorological Administration said.
The Korean peninsula rarely has to worry about significant quakes.
But seismic activity is closely monitored because a spike in activity is often the first indication that North Korea has carried out a nuclear test.
The South Korean port city of Pohang is home to the headquarters of Posco, the country's top, and the world's fourth-largest steelmaker. No immediate damage was reported in the firm's steel mills.
Photos and video footage sent to local TV stations showed crumbled street walls and furniture violently shaking inside people's homes and people rushing out of buildings in panic.
There were no immediate reports of injuries.
Images posted on social media showed shattered storefronts, goods tumbled off store shelves, cars smashed by fallen bricks and cracks on the ground.
Emergency centres nationwide were flooded with thousands of calls seeking information, while Kakao Talk -- the South's top mobile messenger application, used by 42 million people -- reported a disruption in services due to heavy traffic.
South Korean President Moon Jae-In, on his way to Seoul after attending the ASEAN summit in Manila, is set to hold an emergency meeting upon arrival, his office said.
Debris from a collapsed wall is scattered in front of a shop after an earthquake in Pohang, South Korea. Source: AAP
Local nuclear reactors were operating without disruption, Yonhap news agency said, citing officials at Korea Hydro and Nuclear Power.
The most powerful quake recorded in the south was a 5.8-magnitude tremor that hit the southeastern city of Gyeongju in September last year.
