SEOUL - South Korea's ruling party has backed down on a controversial bill to impose tougher penalties for the publication of false information, after critics at home and abroad labelled it a move to stifle a free press and critical coverage.

Rather than put its proposed 'fake news' bill to a vote this week, President Moon Jae-in's liberal Democratic Party agreed late on Wednesday (Sept 29) to create a joint panel with opposition lawmakers to study options on how to amend existing legislation.

The review will also explore how to deal with the spread of false information on social media, such as Facebook and YouTube, which is covered by a separate law.

South Korea is home to a thriving news industry, ranking fairly high on media freedom lists, but it has struggled with the spread of misinformation and cyber bullying in recent years.

The proposed amendment to the Act on Press Arbitration and Remedies would allow courts to order damages five times higher than they can now for producing false or fabricated reports 'with intention or gross negligence' which breach a plaintiff's rights, inflict property damage or cause emotional distress.

The bill also requires media outlets, including internet news service providers, to issue corrections for erroneous reports.

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Moon's Democrats said the bill was intended to ensure the media took greater responsibility for the damage caused by incorrect reports, and to improve news quality and public trust.

But opposition politicians, human rights activists and both conservative and liberal leaning media organisations said the amendments would shield those in power from legitimate scrutiny and harm democracy.

Senior Democrat Yun Ho-jung said the party has not given up on its push for punitive damages, but will gather a range of views, including from media and civic groups and experts.

An alliance of journalist and news producer associations welcomed the decision, but said the panel should include reporters, scholars, activists and legal professionals to build a better consensus.

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Vague and disproportionate

Governments and companies worldwide increasingly battle the spread of false information online and its impact, but activists fear harsh legal penalties could be abused to silence opposition.

A coalition of rights groups, including Human Rights Watch, has waged a global campaign to foil the amendment and sent letters to South Korea's National Assembly and Moon, expressing concerns over media freedom.

"The ruling party appears to have accepted the international community's concerns. That's a relief," said Ethan Hee-seok Shin, a legal analyst for the Seoul-based Transitional Justice Working Group, which is part of the coalition.

Moon's office did not provide immediate comment, but he said last week that reviews were needed to reflect various concerns raised about the bill.

Irene Khan, a UN special rapporteur on freedom of opinion and expression, singled out the current bill's vague language and disproportionate punishment, which she said could undercut not only media freedom but also national prestige.

"It will send a negative message to others around the world who are looking to Korea as a role model," Khan told a virtual briefing last week.

Mary Lawlor, UN special rapporteur on human rights defenders, also warned of a 'chilling effect' on rights advocacy in a video message released on Tuesday.

Public sentiment is divided, with a poll by WinGKorea Consulting released in August showing around 46 per cent of respondents supported the bill, while nearly 42 per cent said it would suppress press freedom.

South Korea ranks 42 out of 180 countries on this year's World Press Freedom Index compiled by Reporters Without Borders.