Tencent plunged as much as 10 percent in morning trade before paring losses and ending down 5.04 percent at HK$527.50, dragging the broader Hang Seng Index down 1.6 percent.

The sweeping restrictions on the firm, which, according to an executive order, come into effect in 45 days, also cover ByteDance, the owner of popular app TikTok.

More than US$30 billion was wiped off Tencent's market capitalisation by the end of the day, with the firm having surged about 70 percent since March as global tech titans benefited from stay-at-home orders aimed at containing the coronavirus.

The move adds to a laundry list of issues that have ratcheted up tensions between the superpowers, including Hong Kong, Huawei and the spread of the virus.

"The US government is expected to follow up with more measures targeting Tencent," Steven Leung, at UOB Kay Hian (Hong Kong), said.

"Tencent's overseas expansion map now looks a bit uncertain, since some M&A deals, especially if its targets are based in the US, will face challenges."

WeChat, known as "weixin" or micro-message in Chinese, has grown to become ubiquitous in daily life across China since its 2011 launch and has more than a billion monthly users, who can also use it to hail rides and make payments.

The move rippled around Asian markets, with investors concerned about increasingly bitter relations between the economic titans that some fear could lead to a renewal of their painful trade war.

"This is yet another watershed moment in the US-China technology cold war," Paul Triolo, head of global technology policy at Eurasia Group, told Bloomberg.

"It shows the depth of the US concern."

Officials from both sides are due to meet next Saturday to review a trade deal signed earlier this year.

"Apart from the obvious fallout to Tencent and ByteDance, Washington DC's moves are sure to ratchet up geopolitical tensions with Beijing once again," said OANDA's Jeffrey Halley.

-- Bloomberg News contributed to this story --