China is barring for-profit after-school tutoring in core school subjects to ease the financial burden on families that has contributed to low birth rates, a report in the Xinhua news agency said on Saturday.

The news confirmed a measure contained in a government document that was widely circulated on Friday, and verified by Reuters. The news sent shockwaves through China's vast private education sector, hitting providers' share prices.

Foreign investment in the sector will be prohibited under the rules set out by the State Council, Xinhua said.

Curriculum-based tutoring institutions will be barred from raising money through listings or other capital-related activities, while listed companies will not be allowed to invest in such institutions, according to this decision.

The policy aims to "significantly" reduce the financial burdens faced by students and families within three years, the news agency said.

The ban threatens to decimate China's $120 billion private tutoring industry and triggered a heavy selloff in shares of tutoring firms on Friday, including New Oriental Education & Technology Group and Koolearn Technology Holding Ltd.

China's for-profit education sector has been under scrutiny as part of Beijing's push to ease pressure on school children and reduce the cost burden on parents.