KT&G had been the subject of a takeover bid from Carl Icahn

The Reuters and AP news agencies both cited unnamed sources as saying Mr Icahn had sold shares worth $460m.

The move comes a day after KT&G's share price had hit a record high.

Mr Icahn had made an unsuccessful bid to buy former government monopoly KT&G with Warren Lichenstein, head of fund Steel Partners II.

The $10bn (�5.7bn) bid for the company which included plans for the company to sell off assets.

The plan was rejected but caused controversy at the time as it would have been the first foreign takeover of a major Korean company.

'Hidden value'

Shares in KT&G, which did not confirm the sale, fell more than 4% after the news.

"The absence of Mr Icahn cools off expectations for a management battle, removing upside momentum," said Lee Kyeong, an analyst with Korean Investment & Securities.

Mr Icahn has gained a reputation for buying stakes in undervalued firms before turning them around and making a profit.

"What Mr Icahn did was find hidden value KT&G, and that's why shares rose so sharply," said Kim Hyun-tae, a fund manager with Landmark Investment Management.