A Chinese investor reacts as she looks at prices of shares at a stock brokerage house in Huaibei city, East China's Anhui province, February 21, 2013. [Photo/IC]

Chinese stocks plunged on Monday, led by brokerages, as regulators took measures to punish non-compliant margin trading activities.

The benchmark Shanghai Composite Index sank 6.3 percent and closed the morning session at 3,163.72. CITIC Securities and Haitong Securities slumped by daily limit of 10 percent.

The nation's top two biggest brokerages, along with Guotai Junan Securities, were suspended from lending money and stocks to new clients for three months, the China Securities Regulatory Commission announced on its microblog Weibo on Friday after the market closed.

Nine other securities companies were also punished in this round of investigation for offenses including allowing unqualified investors to open margin trading accounts.

"The announcement has made the market concerned," said Hong Hao, strategist at Bocom International Holdings, said in a note on Monday, adding that margin trading has contributed more than 30 percent of total turnover in Shanghai at its recent peak.

The balance of credit borrowed for securities trading soared to 1.08 trillion yuan ($174 billion) as of Jan 13 from about 400 billion yuan at the end of June, according to Bloomberg.

More than 20 financial companies sank by the daily limit in the morning session on Monday, including Founder Securities, Sealand Securities, CITIC Bank, China Ping An and China Pacific Insurance.

The country is scheduled to release GDP growth data in the fourth quarter on Tuesday.

The Shenzhen Component Index slumped 5.1 percent and closed the morning session at 10,947.45.