SEOUL, Nov 7 (Reuters) - South Korea's finance minister defended the government's ban on short-selling of stocks, an announcement that comes ahead of general elections next year and has drawn criticism from market players who say the move could hurt the country's global credibility.

"Yes, it is rightfully done," Choo Kyung-ho said on Tuesday, responding to a lawmaker question on whether he backed the regulator's sudden ban on the practice of selling borrowed shares or whether he thought the move is part of a strategy to win votes ahead of the general elections.

The financial regulator on Sunday reimposed a full ban on short-selling until the end of June 2024 to create a "level playing field" for retail and institutional investors.

The move, announced ahead of legislative elections in April, has a populist appeal among retail investors as the public sentiment over the practice of selling borrowed shares has generally been negative because it often triggered major price swings.

Analysts see the move, which contrasts with Philippines' decision to allow short-selling of stocks from Nov. 6. to encourage more trading activity, as broadly negative for the market.

They said it hurts fresh investment and worsens foreign accessibility concerns flagged by global index provider MSCI Inc. as South Korea prepares to win a spot to the coveted developed-market status in the index next June.

"The move completely thwarted Korea's plans to convince MSCI that it deserves a spot in the developed market status. It came at an odd time too, as the market was recovering, not declining, and we're not in a middle of a crisis either," said Cho Jun-kee, an analyst at SK Securities.

In June this year, the index provider again kept South Korea on its emerging market category even as the market size of the nation's main Kospi and Kosdaq combined exceeds some of those already on the developed market list, such as Portugal.

Retail investors have become a key voting bloc in recent years. The number of retail stock trading accounts has roughly doubled since 2017 to about 14 million, with about one in every five Koreans having an account.

South Korea's Financial Supervisory Service in October said it would likely fine two Hong Kong-based investment banks it determined had engaged in naked short-selling transactions worth 40 billion won ($29.58 million) and 16 billion won respectively.

Earlier in the year, the regulator fined five foreign firms including Credit Suisse for naked short-selling, in which an investor short sells shares without first borrowing them or determining they can be borrowed. (Reporting by Jihoon Lee; Editing by Tom Hogue & Shri Navaratnam)