China's financial regulators on Tuesday took steps to clamp down on the fast-growing market for web-based micro-lenders, a credit sector Beijing has grown increasing worried about, sending shares of U.S.-listed shares of Chinese financial firms into a tailspin.

A top-level Chinese government body issued an urgent notice to provincial governments urging them to suspend regulatory approval for the setting up of new internet micro-lenders, sources who had seen the notice told Reuters.

The body, tasked by the central government in Beijing to rein in risks in the growing online finance sector, also told local regulators to restrict granting of new approvals for micro-loan companies to conduct lending across regions, according to the sources.

The information office of the State Council, or Cabinet, and the People's Bank of China could not be immediately reached for comment.

Shares in online lender Qudian sank nearly 20 percent, before recovering some ground to trade down 9.5 percent to $18.18.

Qudian, which is backed by Alibaba Group affiliate Ant Financial and became profitable last year, operates a website that allows college students and young white-collar workers to buy laptops, smartphones and other consumer electronics in monthly installments.

The company went public at $24 per share, raising about $900 million in an IPO that priced above expectations, underscoring robust U.S. investor demand for fast-growing Chinese companies.

On Tuesday, shares of China Commercial Credit Inc were down 8.4 percent and PPDAI Group was down 17.1 percent. Shares of Jianpu Technology, which also debuted just this month, were down 18.8 percent. China Rapid Finance's shares dipped 0.9 percent.

Companies providing small loans, especially on the internet, have expanded rapidly in the past year, partly due to loose government rules.

Such firms meet demand for credit from individuals who have been shunned by Chinese banks, which typically prefer big corporate clients. But interest rates on these small loans provided by non-banks are very high, which is not often appreciated by individuals drawn to the easy terms and conditions.

Consumer lending through Chinese online platforms more than tripled last year to almost $140 billion, according to a recent report by the Cambridge Centre for Alternative Finance.

Tuesday's move comes on the heels of talk of a potential clamp down on consumer lending in China and just days after LexinFintech filed a $500 million IPO with the Securities and Exchange Commission, the latest in a series of offerings from the sector.