SEOUL (Reuters) -Korea Zinc said on Wednesday it has decided to withdraw its plan to issue new shares worth $1.8 billion after the proposal sparked an investigation by the financial watchdog and a sell-off in its stock.

The company said in a regulatory filing it has decided not to pursue the share issue in view of concerns among investors and regulatory scrutiny and aims to resolve a takeover battle at a special shareholder meeting.

The move marks a setback for Korea Zinc Chairman Yun B. Choi, who was seen backing the share issue plan to ward off a takeover attempt by rival Young Poong and private equity firm MBK Partners. Run by the Choi family, Korea Zinc has been in a bitter fight to control the zinc empire with the co-founding Chang family, whose conglomerate Young Poong made a tender offer with private equity firm MBK Partners in September.

"We have decided to humbly accept concerns from the market and shareholders," Korea Zinc said in a statement.

Young Poong and MBK did not immediately respond to a request for comment.

Korea Zinc shares rose 6% after the withdrawal of the plan.

On Oct. 30, Korea Zinc, the world's largest zinc refiner, announced a plan to issue new shares equivalent to nearly 20% of its total shares just two days after it bought back shares at a higher price.

South Korea's financial market watchdog has launched an investigation into whether Korea Zinc's decision to issue new shares involved any unfair practice. The Financial Supervisory Service (FSS) also put brakes on the plan by ordering the company to revise its stock exchange filing on the share issuance.

Korea Zinc said on Wednesday it will try to win the fight against Young Poong and MBK Partners at a shareholder meeting. Young Poong and MBK Partners asked a court to allow Korea Zinc to hold a special shareholder meeting, which is expected to take place early next year.

"Our company will win at a shareholder meeting by putting forward the company's long-term competitiveness and vision," Korea Zinc said.

Young Poong and MBK Partners, which have increased their stake to nearly 40% after a tender offer, nominated 14 new directors for the firm, which currently has 13 board members.

Choi will hold a news conference later in the day.

(Reporting by Jack Kim and Hyunjoo Jin; Editing by Christopher Cushing, Kim Coghill and Sonali Paul)

By Jack Kim and Hyunjoo Jin