"The government had warned several times that virtual coins cannot play a role as actual currency and could result in high losses due to excessive volatility," the government said in a statement.
It noted that trading prices of most virtual currencies were much higher on South Korean exchanges than they were on exchanges in other countries, although it did not provide specific examples.
The steps will include a ban on opening anonymous cryptocurrency accounts and new legislation to allow regulators to close virtual coin exchanges if needed, a measure recommended by the justice ministry, the statement said.
South Korea had previously announced its plan to tax capital gains from cryptocurrency trading to tackle what it sees as the risk of excessive speculation.
Bitcoin, the world's biggest and best-known cryptocurrency, has gained more than 19-fold this year. In South Korea, bitcoin has been extremely popular, drawing wide participation from housewives and students. As of 0304 GMT, it stood at $14,384 on the Luxembourg-based Bitstamp exchange.