Hostile foreign buyouts are a contentious issue in South Korea

The group last week proposed an offer of 60,000 won ($62; �35.6) a share for the company, valuing it at $10bn.

But KT&G's chief executive Kwak Young-kyoon said the offer was "presumptive" and lacked certainty.

If the bid eventually succeeds, it would be the first hostile buyout of a major South Korean firm by foreigners.

KT&G is South Korea's former government-owned tobacco monopoly.

"The board of directors determined that it does not help maximise interests of the company and shareholders to accept the proposal," said KT&G.

But the company, which controls more than 70% of the world's seventh-largest cigarette market, did not specify how it planned to fend off the bid.

Backlash

The bid could serve as a litmus test for other overseas bids for leading South Korean companies in which foreign investors have a significant stake, such as in steel maker Posco.

The offer, the first hostile bid from overseas, is facing stiff opposition.

Several foreign investors already face a backlash from South Koreans after making billions of dollars from buying up and selling assets hit by the Asian financial crisis in 1997.

Three funds controlled by Carl Icahn are the second-largest holders of KT&G stock, accounting for 6.7% of its shares.

But analysts questioned how serious the bid approach for KT&G was.