China's market regulator Thursday extended restrictions on big shareholders selling stocks, on whom a ban had been due to expire at the end of the week, as trade was suspended in the morning following a seven percent plunge.

The ban was first put into force in July as part of the government's extraordinary rescue package to stem a rout that had wiped trillions of dollars from market valuations and jolted investors worldwide.

It bars sales by shareholders or senior executives who hold more than five percent stakes of the company, and traders have worried that if it was lifted a wave of pent-up selling pressure would hit China's volatile exchanges.

The interdiction would be replaced with a rule that such shareholders cannot sell more than one percent of the company within any three-month period, the China Securities Regulatory Commission said in a statement on its website.

They will also be required to disclose planned sales 15 trading days in advance. No expiry date was given, suggesting the measure was long-term.

The CSRC said the new rule will stop a wave of share-selling, help to stabilise the market and "defuse panic emotions".

The CSRC also stressed that the "national team" -- which buys stocks at behest of the government -- "will not quit" and its function to stabilise the market will not change.

China's benchmark Shanghai index tumbled 7.32 percent on Thursday morning before trading was halted for the rest of the day under a new "circuit breaker" mechanism designed to lower market volatility. (AFP)